Elon Musk's Leadership Ethics: Moral Myopia at Tesla

Introduction: Musk's Leadership Failures at Tesla

The leadership example chosen for this analysis is the case of Elon Musk, CEO of Tesla, and his 2018 tweet claiming he had "funding secured" to take the company private at $420 per share. The stock price was well below that level at the time, and it shot up sharply to around $380 on the news, even as most analysts questioned whether Musk truly had funding secured as he claimed. Notorious for over-promising and under-delivering — the Tesla Model 3 had been "coming" for years, with consumers who had already placed down payments still waiting more than two years later for delivery — Musk's promise to take the company private seemed even more far-fetched than most of his announcements.

True enough, over the following days and weeks a damaging story emerged in which drugs, a desire to "burn the shorts," and serious SEC violations all played a part in the narrative. After facing immense pressure to prove his statement about funding, Musk retreated and announced that Tesla would remain public. Share prices collapsed. As respected short-seller Jim Chanos pointed out, it was a corporate governance disaster and Musk was to blame. His leadership was taking Tesla in a damaging direction (Decambre, 2018). Because Musk is such a clear example of what not to do as a leader, he has been selected for this leadership analysis.

Can a Good Leader Be Unethical?

As Winchester (2018) points out, one can be a good leader without being ethical. He gives the example of Hitler, who helped bring Germany out of depression; however, in the business world one can look to numerous more relevant examples: Skilling, Lay, and Fastow at Enron; Madoff on Wall Street; and Strzok and Comey at the FBI. Leaders abound who make an impact both within their organizations and in the world — and yet they are not known for being particularly ethical. Eventually, their lack of ethics catches up with them. Enron, Madoff, Strzok, and Comey all share one thing in common: at the end of the day, their deceptions caught up with them, and they lost their positions while their organizations' reputations fell apart.

The same pattern is unfolding at Tesla under Musk's unethical leadership. While Musk has always been recognized as an innovative leader — bringing new ideas to the company and using his celebrity to promote its goals — his lack of ethics has put him in the crosshairs of short-sellers and the SEC, both of whom have issues with his free-wheeling style of leadership, which frequently contravenes rules and regulations. For example, since his settlement with the SEC over the "funding secured" debacle, Musk was ordered to have all his tweets internally reviewed before publication. Yet the SEC subsequently issued a contempt order, stating that none of his tweets had been internally reviewed (Liberto, 2019). On February 19, 2019, for example, Musk tweeted out market-moving information that was not vetted internally, thereby "betray[ing] a legally-binding agreement prohibiting him from publishing market-moving messages on social media without them being vetted first" (Liberto, 2019).

Musk was clearly in violation of his agreement with the SEC, which is why he was held in contempt. His defense — that the SEC seeks to silence him — does not hold up, since the agreement merely required that his public announcements be overseen by an internal disclosure counsel, a standard of review Musk has been unwilling to accept (Krisher, 2019). As the head of a Fortune 500 company, one would expect Musk to be forthright and honest in his dealings with investors, yet he often comes across as a promoter more interested in moving the share price than in placing accurate information in the hands of investors and stakeholders.

Two ethical concepts that relate to this case are moral myopia, defined as "a way of understanding how individuals might miss ethical aspects of a decision" (Winchester, 2018, p. 54), and moral muteness, defined as "a way of analysing how organisations can sometimes close down or prevent the discussion of ethics" (Winchester, 2018, p. 54). Both concepts apply to Musk's short-sighted disregard for ethics. Moral myopia explains how Musk overlooks the ethical dimensions of his leadership, since he frames all his actions in terms of boosting the stock price, which he considers beneficial to investors — and therefore beyond ethical reproach. Moral muteness explains the way Tesla shuts down any discussion of ethics, effectively giving Musk free rein while top-level executives depart the company in large numbers (Hahm, 2019).

Moral Myopia in Musk's Decision-Making

As Winchester (2018) notes, moral myopia "prevents us making ethical decisions. If we cannot see the ethical issues, we cannot even start on the process of becoming more ethical decision-maker" (p. 57). Unless a leader is willing to recognize the ethical problems with his actions, he will not be troubled by engaging in unethical activity. Winchester uses the example of Enron's leaders to illustrate how this out-of-sight, out-of-mind mentality generated so many ethical crises for the company and eventually led to the imprisonment of Skilling and Fastow. Skilling exemplifies severe moral myopia because he refuses to acknowledge that he would have done anything differently — he is blind to the moral problems of his actions as a leader and declines to accept accountability.

Musk is similar in that he accepts very little of what his accusers and critics identify as unethical decision-making. He routinely accuses his critics of being short-sellers whose sole aim is to depress the share price (DeBord, 2018). Rather than acknowledging wrongdoing and striving to become a more ethical leader — which would help stabilize the company and silence critics who view him as exaggerating Tesla's health — Musk continues to act without sufficient regard for consequences.

This pattern was evident when Musk suddenly announced the closure of all retail shops and a shift to online-only sales, drastically cut prices on top-tier models to drive sales volume, and began laying off workers at a rapid pace after having promised no further layoffs (Dow, 2019). The uproar was immediate. Consumers in China protested outside Tesla shops, finding that the sudden price drop had cut the value of the vehicles they had recently purchased nearly in half. Critics argued that these moves indicated Tesla had a serious cash flow problem, despite Musk's previous claims of being cash-flow positive. In response to the public outcry, Musk quickly reversed course, re-opened the retail shops, and restored the prices of top-tier models. Had Musk considered the ethical dimensions of these decisions in advance, he could have avoided the turmoil altogether — for instance, by being more transparent about the company's cash flow from the outset rather than treating investors and consumers as pieces in a game.