An Analysis of Elon Musk’s Leadership of Tesla Inc.

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Company Research Paper MGMT E-4000

By: Roxana Salehi, November 2018

Tesla wants to “accelerate the world’s transition to sustainable energy” by selling electric cars and clean energy products [1]. Will it succeed? The answer to this question, and the CEO Elon Musk’s role in Tesla’s success, have captured the imaginations of many, as evident from the spate of headlines about the company’s struggles and achievements, making it one of the most closely followed public companies in the world [2]. How is Musk’s leadership related to these stories and what is his impact on Tesla? Using an Organizational Behaviour lens, this paper attempts to provide a partial answer. It demonstrates that gaining an understanding of Musk’s narcissistic personality and his sources of power are key to identifying the impact of his leadership on Tesla. It further argues that Musk’s leadership has both a positive and negative impact on Tesla’s organizational outcomes.

Tesla Motors was founded by Eberhard and Tarpenning in 2003. Starting as a key investor in Tesla, Ellon Musk, co-founder of Paypal and SpaceX, took over as Tesla’s CEO in 2007 and the company went public in 2010 [3]. While company stocks have increased in value overall, Tesla has struggled with hitting production targets, profitability, high rates of executive turn over, debt, and concerns over workplace safety [4] [5]. In recent months (August to November 2018), the company stock price has been particularly volatile, and every up and down is linked to a news story involving Musk (Exhibit A). In August, presumably without the board’s knowledge, Musk announced a possible solution for Tesla’s financial sustainability by tweeting: “Am considering taking Tesla private at $420. Funding secured”. The post led to confusion among stakeholders, a drop in Tesla’s stock price, and eventually to the Securities and Exchange Commission (SEC) suing Musk over the “misleading tweet [6].” Musk had to resign as Chairman as part of that settlement. In September, Musk smoked cannabis during an appearance on an internet show, and on the same day two Tesla executives resigned [7]; Musk admitted that he was sleep deprived, was using sleeping pills, and was burnt out because of working over 100 hours a week to meet the car production targets [8]. In October, the company delivered a profit that came in well above expectations, sending its stock prices soaring [9]. In November, allegations of underreported injury rates resurfaced again [10], and Tesla’s new chairwoman was announced [11]. To understand this mixed picture, characteristics of Musk’s leadership need to be unpacked.

Musk’s has been described as a “larger than life”, “charismatic”, “visionary” leader and a narcissist [12]. As a charismatic leader, he has a noble and bold vision – a future in which the world has transitioned to sustainable energy—and he has been praised for being able to communicate the importance of the vision to the world using “jargon-free”, “concise”, and “easy going” communication style [13]. He takes risks and is willing to stake his reputation on his ideas [14]; he is known for his overly optimistic deadlines and difficult to achieve goals [15]; he has used his personal wealth to invest in the company and is dedicating large amounts of his time to Tesla [8]. Research suggests that charismatic leadership is related to higher levels of individual, team, and organizational performance [14], but that charismatic leaders do not always act in the best interest of their organizations if they have a narcissistic personality [14] [16] [17]. Prevalent in many charismatic leaders, narcissism has both positive and negative aspects. The positives enable a leader’s risk taking, boldness, confidence, and the charisma to persuade the masses. On the negative side, narcissists lack certain emotional competencies such as self-control or conflict management, can be erratic, and cannot always differentiate between personal and organizational goals [16, 17]. Research on narcissistic charismatic leaders show that in order to maximize the benefit and minimize the harm of a narcissistic charismatic leader, the company needs to: i) create checks and balances that can anchor such leader and keep her rooted and accountable; ii) balance her stretch goals with a sense of physical and psychological safety—being able to speak up without being punished [14] —for staff [15].

Understanding the characteristics of Musk’s leadership, as described above, paves the way to understanding the positive and negative aspects of his leadership on Tesla’s organizational outcomes. Starting with the positive, Musk seems to have been able to align a socially desirable goal (i.e sustainable energy) with organizational goals through his boldness, confidence, and charisma, making work meaningful for many Tesla employees. “Having the opportunity to work for a company that is changing the world is exhilarating and rewarding,” writes one reviewer on Glassdoor [18]. “I'm working for a mission, not just for a paycheck,” says another [18], exemplifying a trend that shows how Musk has been successful in getting staff behind the company vision. This is important because belief in organizational values and vision leads to higher levels of organizational commitment, meaning staff wish to remain a member, and are more likely to work through difficulties [14].

As noble as Tesla’s bold vision is, Musk is not able to always separate his passion for achieving the vision with what is good for Tesla. Fuller et al. calls this a narcissistic organizational identification, which happens when leaders begin to perceive that the organization derives much of its identify from them, so much so that the identity of the organization is subsumed within their own identity, making it difficult to distinguish between self-serving and organization-serving behavior [12]. One example is Musk’s tendency to announce overambitious production targets, causing Tesla to come under criticism for its difficulty meeting those goals; the FBI is currently investigating whether Tesla made projections in 2017 that it knew it would be impossible to meet [19]. Fuller et al. suggest that one motivation behind Musk’s announcement might be to continue to cultivate his image in the media as an innovator and a game changer who sets and meets ambitious goals [12]. Musk is equating what is good for his image with what is good for Tesla and even for his own mental health, which seems to be suffering due to working over 100 hours a week [8]. Some Tesla staff have attributed their injuries and stress levels to working too many hours, and say they are paying the price for Musk’s big promises [4]. “He is passionate about his vision, but cares nothing for his own workers, and will cut you and anyone else in the way of HIS dream,” writes one reviewer on Glassdoor [18]. Glassdoor estimates that over 400 individuals (a quarter of reviewers) have left negative comments about long hours and lack of work-life balance, bringing down the overall company score to 3.4 [18]. Work-life balance is also the lowest sub-category of company rating on Indeed.com (2.4 out of 5, n=1456). While the reviews and scores on these sites may not be representative of Tesla’s 40,000 employees [20], they demonstrate a negative side of Musk’s leadership on job satisfaction and morale of some staff.

Emotional Intelligence (EI)—the ability to identify, understand, and manage emotions in ourselves and others— has been shown to make a leader more effective [21]. Evidence to date suggests that Musk’s EI has both benefited and harmed the company. He has been praised for his ability to make an emotional connection with employees and customer, especially through Twitter, where he shares updates, opinions, challenges and jokes with 23.4 million followers [22]. On the other hand, he appears to lack self-control, a key component of EI: the ability to keep disruptive emotions and impulses under control [21]. Musk’s lack of self-control is compounded by an oversensitivity to criticism common in narcissistic leaders [16] and the implications of such combination are significant for Tesla. Internally, some staff have reported being fearful of speaking up about safety issues knowing high injury rates are a statistic Musk does not want to hear about [10], and some of the few who did speak up, such as Tesla’s safety executive Carlos Ramirez or Anna Watson, a physician assistant who worked at Tesla's injury clinic, say that it was the reason why they were fired [23]. Tesla denies such accusations but investigations continue [10]. Outside of Tesla, Musk has lashed out on Twitter at many individuals who have criticized or disagreed with him. For example, Musk accused a cave diver involved in a rescue mission who disagreed with Musk’s rescue idea of being a pedophile, without offering any facts to back up his accusation [24]. This lack of self control and erratic behaviour has led to alienation of some key stakeholders (e.g. investors), raising concerns about his sense of integrity and maturity as a CEO, and ultimately gaining him the reputation of “Donald Trump of the tech world” [25].

Stock prices are a key measure of organizational survival, which is the market’s perception of an organization’s ability to exist and grow over the long term [26]. Although it is not possible to accurately isolate the impact of Musk’s erratic behaviour from other variables that impact stock prices, Exhibit A shows that his controversial actions coincide with significant dips in stock price. One estimation is that Musk’s “taking Tesla private” tweet had cost Tesla $20 billion dollars [27]. These types of incidents always surrounding his name breed distrust by current investors, and keeps the market uncertain as to whether they should continue to support his company, says Davis, a senior investment advisor based in Dallas [28]. Yarborough, another investment advisor, concurs with Davis. “ I don't own any [Tesla shares] for clients. My issues with the company are financial too but from an Organizational Behaviour perspective Musk's recent lack of restraint on Twitter would greatly concern me [29].

Musk personifies a charismatic leader with a narcissistic personality, operating within a company that benefits from the positive aspects of his leadership but does not seem to have sufficient checks and balances in place to minimize harms caused by the negative aspects. One plausible explanation is that these checks and balances are missing or ineffective because Tesla is too dependent on Musk. He possesses a great degree of personal and formal power: he is a billionaire, Tesla’s CEO (and up until recently, also the chairman) and also the biggest shareholder (22.5% as of November 2018) [5]. Musk has many supporters due to his effective use of inspirational appeal [30]—gaining his staff’s commitment by appealing to a better future for humanity—which might make him seem un-substitutable in Tesla’s eyes [31]. Although a discussion of governance is outside the scope of this paper, it is relevant that Tesla’s board and its upper management, who theatrically should be leading the company with Musk and holding him accountable, do not seem to be able to control him because of the disproportionate amount of power that Musk possesses. They have been criticized and have even been called “worthless” by the former chief accountant of the SEC [32]. Some argue that board members and upper management at Tesla are just incompetent; others blame Musk, saying he does not share power and wants to be a one-man show, leading to high rates of executive turnover [33].

The main implication of this analysis is that Tesla needs to reduce dependency on Musk by spreading the power in the organization and by holding Musk accountable for his actions. This might be easier said than done, but it aligns with what research says is necessary to do in relation to powerful narcissistic charismatic leaders [12] [16] [30]. As part of SEC settlement, Musk was forced to give up his position as chairman and subsequently Tesla appointed Robyn Denholm as the new chairwoman [2]. Is this a step in the right direction, to spread the power within Tesla, or is it merely checking a box? The impact is yet to be seen. Viewing Musk through a more empathetic lens leads to another implication around the need for Tesla to monitor Musk’s mental health and to provide support to him should he accept it. This analysis focused on characteristics of Musk but a leader’s effectiveness is also influenced by their followers’ characteristics, and the broader context in which a company operates [14]. A more comprehensive future research could look at the interplay of all three factors, over time.

Exhibit A: After References

References

[1]  Tesla. (2018). About Tesla. Available: https://www.tesla.com/en_CA/about

[2]  E. McKinley, "How the new Tesla chairman thinks about leadership and risk taking," in CNBC. November 8, 2018.

[3]  E. Gregersen, Schreiber, B, "Tesla, Inc.," Encyclopedia Britannica, 2018.

[4]  S. Francisco, "Tesla workers say they pay the price for Elon Musk's big promises," in The Guardian. June 14, 2018.

[5] M. Coren, "Tesla was always a bet on Elon Musk—and now it’s even more of one," in QuartzatWork. May 14, 2018.

[6] J. Stempel, Sage, A., "U.S. regulator sues Musk for fraud, seeks to remove him from Tesla," in Reuters. September 27, 2018.

[7] S. Salinas, "Tesla stock closes down 6% after top executives resign and Elon Musk smokes weed on video," in CNBC- TECH. September 7, 2018.

[8]  D. Gelles, "Interviewing Elon Musk," in The New York Times, 2018.

[9]  N. Boudette, "Tesla reports a rare quarterly profit, its biggest ever," in The New York Times. October 24, 2018.

[10]  REVEAL Podcast, "Working through the pain at Tesla ", 2018.

[11]  J. Kollewe, "Tesla: Robyn Denholm named as new chair to replace Elon Musk," in The Guardian. November 8, 2018.


[12] P. Fuller, Galvin, B,, Ashforth, B., "Larger than life. Narcissistic organizational identification in leadership," Organizational Dynamics, vol. 47, pp. 8-16, 2018.


[13] C. Goldberger. (2017) Are Elon Musk's public speaking skills as visionary as his cars? Quantified Communication [blog].


[14] S. P. Robbins and T. A. Judge, "Chapter 12. Leadership," in Essentials of Organizational Behavior, ed: Pearson, 2014.


[15] M. Pina e Cunha, L. Giustiniano, A. Rego, and S. Clegg, "Mission impossible? The paradoxes of stretch goal setting," Management Learning, vol. 48, pp. 140-157, 2017.

[16] M. Maccoby, "Narcissistic leaders: The incredible pros, the inevitable cons," Harvard Business Review, January, 2004.


[17] S. Braun, "Leader narcissism and outcomes in organizations: A review at multiple levels of analysis and implications for future research," Front Psychol, vol. 19, 2017.

[18]  Glassdoor. www.glassdoor.com.

[19]  G. Rapier, "Tesla's 'deepening' FBI inquiry will be a hard case for investigators to prove, Wall Street analyst says," in Business Insider. October 29, 2018.


[20] P. Bhardwaj, Cheng. J. (2018) Tesla added twice as many employees in 2018 as it now plans to cut. Business Insider.

[21]  D. Goleman, "Leadership that gets results " Harvard Business Review, March, 2000.

[22]  J. Bariso, "With a single tweet, Elon Musk taught a major lesson in emotional intelligence," in Inc.. January, 2018.


[23] M. Romburgh, "Former Tesla safety exec claims he was fired for raising concerns about workplace injury reports " Silicon Valley Business Journal, June, 2018.


[24] S. Levin, "Elon Musk calls British diver in Thai cave rescue 'pedo' in baseless attack," in The Guardian. July 16, 2018.

[25] C. Graham, "Why Elon Musk is the Donald Trump of the tech world " in The Telegraph. May, ed, 2018.


[26] S. P. Robbins and T. A. Judge, "Chapter 1: What is organizational Behaviour," in Essentials of Organizational Behavior, ed: Pearson, 2014.


[27] C. Trudell, "Elon Musk tweets may cost tesla investors close to $20 Billion," in Bloomberg Business, 2018.

[28]  N. Davis, personal communication, October 2018.

[29]  D. Yarborough, personal communication, October 2018.

[30]  S. P. Robbins and T. A. Judge, "Chapter 13. Power and Politics," in Essentials of Organizational Behavior, ed: Pearson, 2014.

[31]  J. Pfeffer, "Power Play," Harvard Business Review, July-August, 2010.

[32]  T. Wolverton, "Tesla's board is terrible at its job — it's shown it has no interest in controlling Elon Musk or sticking up for investors," in Business Insider. September 2018.

[33] D. Hull , Pogkas, D., "Elon Musk doesn’t work Alone. These are Tesla’s other key leaders," in Bloomberg, June 26, 2018 (Last updated September 7), 2018.

 

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