Commenting on the news that the US Securities and Exchange Commission has launched legal action against Elon Musk and Tesla, Dr Stephen Connelly, Associate Professor in Warwick Law School, said:

“The regulatory suit against Elon Musk is a reminder to all insiders of publicly listed corporations that their words can be price sensitive – that they can move and possibly distort markets.

"Our listing regime is partly founded on the capital markets being able to assess full and accurate information about a business. The Musk case, however, also highlights a recurrent problem for regulators: that not only do some CEOs fail to see the distinction between their personal confidence and emotional attachment to a business on the one hand, and the duties of their office on the other, but also that Boards can struggle to reign in such behaviour. A CEO can become Too Big for his Board, so to speak, as we saw in the case of certain banks during the Credit Crunch.

"Given the amount of effort most public companies and their advisors put into verifying and issuing regulatory announcements, I can well understand the immediate intake of breath when Mr Musk’s comments were made.

"It seems that Mr Musk was partially motivated by a desire to take Tesla private. It is sometimes easy to forget that a company can be public in two senses: in the narrow sense that its securities are issued to retail investors, but also in a deeper regulatory sense that large companies are concentrations of private power having significant public effect.

"Many aspects of the regulation of corporations derive from a desire that directors acknowledge their public role – their public power – and consider all stakeholders, including capital providers, in any decision they make. These rules may feel ‘unfair’ to a quickly growing company, but they are designed to assist the transition to corporate maturity.”

28 September 2018

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