Loose lips, charisma, and legal proceedings

Last week, the American financial regulator, the Securities and Exchange Commission (SEC) initiated legal proceedings against Elon Musk, the legendary CEO of Tesla, for misleading shareholders. The legal action is not against the company, but against Musk alone. In August, Musk had announced to take the company private, which he later negated. This major announcement led to a lot of action in the market. When it was refuted, it again resulted in serious confusion among the shareholders.

Musk has been one of those business leaders, at least in the recent times, whose charisma has been unmatched. Steve Jobs was another who became synonymous with the company Apple. Similarly, Musk is synonymous with Tesla. It is difficult to imagine Tesla without Musk, however, history tells us that Jobs was made to leave Apple. 

Later, he returned to the company and did some wonderful things, resulting in pioneering products like iPod, iPad, iPhone, etc, and leading to unprecedented commercial success. Yet, this goes on to show that even highly charismatic leaders may be questioned by the company’s board or compelled by the financial regulator to dissociate themselves from the company created and nurtured by them.

Jobs was temperamental, but the bandwidth within which he allowed his mood to swing surely falls short when compared with the mercurial Musk’s highs and lows. The market value of Tesla, a company which is yet to produce products which may attain the status of being called ubiquitous, is comparable to that of automobile giants like Ford and General Motors. However, it may not last long. 

The investors, who have been relying on Musk’s superstar position and continuing with steady flow of funds, despite numerous failures and repeated extensions of deadlines for delivery of electric vehicles, may lose confidence one day, until and unless Musk is able to pull out the ultimate card up his sleeve. Another failure may be the metaphorical last straw on the camel’s back.

And, frankly, no one wants that to happen. Even Musk’s competitors, who have aligned their business strategy with his to produce electric vehicles and have made a paradigm shift in their strategy formulation from fossil-fuel to electric, want him to succeed as that will not only be Musk’s or Tesla’s success, but it will truly be the commercial success of the revolutionary technology of powerful and elegant electric vehicles. No one denies Musk’s genius; the only thing the market is worried about is very high levels of unpredictability.

Business leaders, for that matter all persons, are expected to be consistent, which shows in expressions and related actions. Not keeping one’s promise, or switching positions from one end of the pendulum to the other very fast, or not matching actions with words are sure signs of a conman. The world of business is full of such con men. Investors are duped day in and day out. 

There are uncountable stories of numerous con men in India and abroad — Ponzi, Madoff, Natwarlal, etc. Some of them end up in jail and some remain in the system looking out for their next prey. Financial regulators have found it very difficult, if not impossible, to control such cheats. It also depends heavily on the efficacy of the legal environment in which they operate. Indian system, though tightening speedily, is not able to fully deter such activities. If caught, the penal action, often, is neither commensurate nor timely.

Some businesses in India have been misleading investors, consumers and the market with their false promises. Financial institutions, investment agencies, brokers, unscrupulous traders, and several others of the same ilk do cheat on a regular basis. India’s reputation in the global gold market is that most of the jewelers and goldsmiths in the country cheat routinely on cartage. 

Mostly, individuals manning these businesses are able to survive and even thrive on the basis of personal relationship with customers and the trust they are somehow able to develop. But, trust, faith, confidence or even charisma cannot last forever. Honesty in actions, thoughts and expressions does matter. Final results count, whether it is Musk or any other business leader. After all, actions speak louder than words.

The author is a professor at IIM-A, akagarwal@iima.ac.in