How should a corporate board respond to a CEO publicly insulting and shaming a sitting president?
It’s not a question that most need to consider, since few chief executives dare to directly criticize the White House. When CEOs do speak out against a federal directive, their messages are usually delivered behind closed doors, or in a collective open letter. But this week, Elon Musk changed all that and forced the issue in a prolonged public spat with Donald Trump.
The pair had a much-anticipated falling out over Trump’s budget, also referred to as the “big beautiful bill,” on Thursday, which quickly got personal. Musk asked his social media followers if it was time to create a new political party, said that Trump’s tariffs would cause a recession, and even claimed that Trump’s name was in government documents about Jeffrey Epstein, the convicted sexual offender. “That is the real reason they have not been made public,” Musk wrote.
The feud has already been costly for Musk and his many businesses, including Tesla. The automaker’s shares took a tumble as the back-and-forth took over the news cycle, dropping 14% in on Thursday, and costing shareholders $150 billion. Now analysts warn that feuding with Trump could cost Tesla billions, considering that Trump could repeal electric vehicle tax credits and other measures that have boosted Tesla’s earnings. The company could also face increasing regulatory obstacles around its autonomous driving vehicles, the technology that is meant to drive Tesla’s future and has been cited by stock watchers as a reason for the stock’s sustained eye-popping performance. Tesla bull and Wedbush analyst Dan Ives seemed to speak for investors early on Friday when he wrote in a research note: “This needs to calm down.”
At a regular company, there’s a solid chance that the events of the last few days would spur a board to dismiss a CEO. But will the Tesla board fire Musk to protect public shareholders from potential damages?
“They should,” Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware, told Fortune. “But they won’t.”
A quiet board
The Trump-Musk spat is just the latest in a series of events that have forced the question of what role Tesla’s board actually plays in the company.
“Over the years, Musk’s behavior has become more outrageous,” says Elson. “The board’s lack of response makes you wonder, ‘Who are these people? Why are they there?’”
It has long faced criticisms for being too close to Musk, and therefore willing to overlook numerous management issues. For instance, it famously approved Musk’s much-disputed 2018 pay package for $56 billion, and has silently witnessed a year of high-profile divisive behavior from the chief executive that has led to public protests and customers distancing themselves from the company. And recent allegations about Musk’s drug use echo reports that have surfaced in the past without putting Musk’s role at risk.
There are a few contributing factors as to why that is. Musk is a controlling shareholder in Tesla, where he holds 22% of the voting power, making it extra challenging for board members to have the votes needed to force him out. The board is also in a tough position in that firing Musk could tank the stock, considering that his name is so closely associated with the company.
Many directors also have particularly close ties to Musk. That includes his brother Kimbal Musk, an entrepreneur and restaurant owner, and Joe Gebbia, a cofounder of Airbnb and a friend of Musk’s. There are no car industry or green energy CEOs in the group, as one might expect at a typical EV company.
The directors are also paid very well. This year, a Delaware court ordered the board to give back more than $900 billion in pay after finding it had paid itself too handsomely. Robyn Denholm, Tesla board chair since 2018, earned $600 million, far more than people with the same position at other companies. The court found “the compensation was so significant, it made it really almost impossible for them to be independent directors,” says Elson.
“It is difficult to get a man to understand something when his salary depends on his not understanding it,” says Nell Minow, a corporate governance expert, quoting Upton Sinclair. “That’s this board.”
To be sure, this year, there were signs earlier this year that Tesla’s directors were taking more control over the company’s governance. Last month, the Wall Street Journal reported last month that the board had begun looking for a successor and selected a search firm to assist them. It also reported that the board had met with Trump weeks before he announced he would be spending less time at the White House. It seemed that between the backlash against Tesla provoked by Musk’s focus on Washington, and Tesla’s shrinking share price, finally pushed the board to act.
But the board denied the report outright, with Denholm calling it “absolutely false.”
Could anything change?
Even considering his own predilection for conflict, Elon Musk’s latest squabble is in a category of its own.
But board experts agree that to expect action from the Tesla board is misguided. “There have been so many ‘Now the board has to do something moments,’ and they have failed every time,” says Minow. “I no longer feel that there is such a thing as ‘Now they have to do something.’”
There are technically ways that shareholders could move the needle if they wanted Musk out. They could vote directors off the board via shareholder proxy votes, and hope that new directors would fire Musk. Or they could try to sue the board for not kicking Musk to the curb when he put the brand at risk and split his focus between Washington and Tesla. But a shareholder who wanted to do that would need to own up to a 3% stake in the company, points out Ann Lipton, associate dean for faculty research at Tulane University’s Law School, and governance laws make it all but impossible to do.
“No shareholder is going to be able to show that this board is acting in bad faith by failing to replace Musk as CEO, which is really the level that they’d have to show,” she said.
It’s still theoretically possible that a Tesla board director could try to bring about change by suggesting Musk go. But they would have to make peace with potentially losing their roles, says Elson.
“They would say, ‘Look, I will vote to move him along. And if I lose, I leave. I can’t do this anymore,’” says Elson. Whether they’ll do that depends on whether they’re people of principle, he added, or “people of convenience.”
“We’ll have to see,” he said.
This story was originally featured on Fortune.com
