In the upcoming times, there’s an anticipated clash between Tesla’s leader, Elon Musk, and Meta’s figurehead, Mark Zuckerberg, set to occur within a Las Vegas arena. This impending confrontation persists despite the dissenting views of Musk’s mother, Maye, as well as his on-and-off partner, Grimes.
However, even the governing bodies of their respective companies lack the authority to halt these influential industry moguls. This circumstance, as highlighted by experts in corporate governance, poses significant concerns for investors and the broader workforce within these firms.
Charles Elson, occupying the Edgar S. Woolard Jr. Chair in Corporate Governance at the University of Delaware, remarked, “The entire scenario appears to lack purpose, and truthfully, individuals tasked with supervising extensive organizations should foremost be focused on their own well-being.”
Both Musk and Zuckerberg hold a distinct and irreplaceable status within their respective companies. If either of them were to suddenly depart, face incapacity, or encounter a more severe outcome, the company would find itself in a challenging position.
Investors might hastily sell off their stocks, the company’s competitive advantage could diminish, and the organization might forfeit the unique vision and leadership approach that has facilitated the recruitment of top-tier talent, the development of popular products, and the generation of extensive media coverage and attention.
This potential risk, often referred to as “key person risk,” is particularly heightened in technology companies led by their founders. This vulnerability is explicitly outlined in both Meta’s and Tesla’s regulatory documentation. Notably, Tesla’s filings articulate, “We are greatly reliant on the contributions of Elon Musk, also known as the Technoking of Tesla, who serves as our Chief Executive Officer.”
Zuckerberg’s “position and significance within Meta” is considered of such paramount importance that the board of directors recently sanctioned an annual allocation of $14 million for his personal security.
Navigating the Controversy
While CEOs assuming physical risks is not unheard of such as the unfortunate incident of Micron CEO Steve Appleton’s passing while piloting a kit plane in 2012 engaging in cage-fighting is an endeavor that inherently involves a certain degree of expected injury. In a typical company, according to Elson, a CEO undertaking such a level of physical risk “would be highly improbable.”
“The board would present a choice to either engage in such activities or face termination,” the professor explained. “This behavior contradicts the conduct expected of a responsible leader in an organization. We’re not dealing with reality television here; these are substantial enterprises. The livelihoods of hundreds of thousands of employees hinge on stable and dependable leadership.”
While the Musk vs. Zuckerberg’s showdown has garnered significant criticism, much of the disapproval has revolved around the immature and degrading behavior exhibited by the two corporate leaders and the negative precedent it establishes regarding violence.
Surprisingly, there has been a notable absence of public discourse regarding the potential repercussions for the companies in the event that one of the two CEOs does not exit the ring in the same condition as they entered. (It’s worth noting that several individuals have lost their lives in sanctioned MMA fights.)
This lack of discussion may partially stem from the fact that there is limited recourse available to dissuade these specific CEOs. Although Tesla and Meta are publicly traded entities (with a collective market valuation exceeding $1.5 trillion), their CEOs wield an extraordinary level of influence over their respective boards.
CEO Succession, Challenges in Leading Tech Companies
In the case of Meta, the possibility of firing Zuckerberg is simply non-existent. Since its initial public offering (IPO) in 2012, Facebook adopted a dual-class share structure that grants the founder 60% of the voting power.
As for Tesla, while the company theoretically retains the power to terminate Musk, the automaker operates under supermajority voting regulations, meaning significant changes necessitate the approval of two-thirds of the shares. Given that Musk himself possesses approximately 13% of these shares, removing him becomes an exceedingly challenging endeavor.
In fact, last year, the Tesla board attempted to eliminate the supermajority requirement, but the proposal failed to secure the necessary supermajority support stated by reuters.
“This situation underscores the issue with dual-class stock or a controlled company like Tesla,” observed Elson. “It emphasizes the fact that actions can be taken with minimal external recourse. This is the inherent risk of investing in such entities there’s a notable absence of accountability.”
Based on a study conducted by Morgan Stanley concerning CEO departures at prominent financial institutions in 2017, which was referenced in a Financial Management news piece, organizations that experienced sudden CEO losses recorded an underperformance in the market of approximately 11% within the subsequent 12 months.
The article suggests that companies should mitigate this risk by establishing robust succession strategies. In the event that Meta has a predetermined successor for Zuckerberg, this information has not been disclosed by the company.
As for Tesla, when shareholders attempted to compel the electric car manufacturer to formulate a succession plan during its recent annual meeting, the proposal was defeated by the company. Tesla’s argument was that publicly revealing a successor to Musk would potentially place the company at a competitive disadvantage.
Reasonable and calmer minds might yet prevail
Towards the conclusion of June, Musk and Zuckerberg arrived at an agreement to engage in their anticipated face-off. The proposition for the fight stemmed from Musk’s frustration over Meta’s introduction of Threads, a competitor to Twitter, which Musk himself owns and recently rebranded as X. Notably, Zuckerberg holds the position of being the frontrunner for victory, owing to his existing proficiency in jujitsu combat.
Anticipating the event, Musk has also been undergoing training. However, he revealed this week that he underwent an MRI for his neck and upper back and mentioned the potential need for surgery before the fight can proceed. Zuckerberg, on the other hand, suggested August 26 as a potential date for the fight.
Wednesday saw Musk adding to the growing speculation about his potential withdrawal by expressing support for a suggestion from Chris Anderson, the head of TED, who proposed a “cage debate” rather than an actual fight. Musk deemed this idea “a good idea too.” However, he continued to acknowledge fighting as “a noble sport,” while also emphasizing the intention to pay tribute to those who have historically fought for honorable causes.
Similar to Elson, John Coffee, the Adolf A. Berle Professor of Law at Columbia Law School, has a critical view of the planned cage fight. Nonetheless, he remains doubtful that Musk will ultimately carry it out.
Coffee conveyed his perspective via email, stating, “Should it materialize, this strategy is ultimately detrimental, leading them to emerge from what can be likened to a hair-pulling match with reduced respect from all quarters. What is required is a figure of esteem, such as Warren Buffett, to guide them in the direction that CEOs should not exhibit childish behavior, even in situations where they may be tempted to.”
In the midst of impending clashes and strategic disputes, the role of CEOs is under intense scrutiny. The potential risks, both physical and reputational, underscore the challenges of maintaining leadership in tech giants like Meta and Tesla. CEO influence, dual-class structures, and succession planning continue to shape the landscape of corporate governance.
The outcome remains uncertain, prompting reflection on the intricate dynamics of executive authority and industry impact.