The US agency fined Musk $20m for his August tweet that he was seeking to take Tesla private at $420 a share, while Tesla itself was also fined $20m.
Given that Musk owns roughly 20% of Tesla, a stake worth around $10.6bn at today’s market price, he is unlikely to be too bothered about the monetary penalty.
In fact, Tesla’s share price rose by 17.4% after news of Musk’s settlement broke on Sunday, adding more than $1.8bn to Musk’s net worth.
The SEC penalty amounted to little more than a slap on the wrist for Musk, who seemed to respond to the incident on Monday by tweeting the phrase “Naughty by Nature” alongside a music video with the same title — hardly the act of a remorseful executive recently sanctioned by the SEC.
The SEC, however, has put in place measures which potential will give the board more authority over the CEO.
Alongside the seemingly derisory monetary penalty, Musk must step down as Tesla chair, Tesla must introduce two new independent directors to its board, and the firm must establish a new board committee to put in controls and procedures to oversee Musk’s communication.
Tesla’s board is now responsible for controlling Musk — a difficult task, given the seeming indifference he showed to traditional corporate governance policies even before the infamous “funding secured” tweet.
The company has been tasked with protecting shareholders and the investment community in general (including those taking a short position on the stock) from further misleading information from the CEO.
This will not be easy.
Musk remains Tesla’s CEO and largest shareholder, and is the public face of the company he helped found. Tesla prides itself on having an advertising budget of zero, instead using Musk to personify the brand to his more than 20m Twitter followers.
But it must now take control of its CEO and its corporate communication, first by appointing a strong and independent chairman.
Musk cannot be allowed to run Tesla without oversight and be its sole communication outlet.
The board must provide supervision and make Musk accountable for his actions, no matter how high his perceived value to the company.
Otherwise, the rest of the Tesla shareholders, which own 80% of the company, will continue to be held ransom to his occasionally harmful whims.