William M. Klepper on How “Tough Love” Could Have Saved Tesla $40 Million

Everybody needs a superior, even the company CEO, and governing boards have increasingly answered the call. In doing so, they have added plenty “tough love” to the executive suite, as William M. Klepper has so well chronicled in The CEO’s Boss, with rich accounts of the partnerships, sometimes flawed, between bosses and boards from BP and Lehman to Hewlett-Packard and Wells Fargo.

~ Michael Useem, professor of management, Wharton School, and coauthor of Boards That Lead

It’s the fourth week of the new year and time for your new year’s resolutions to extend to the boardroom. Let’s face it, managing the CEO can be trying, and developing the skills to show “tough love” to your CEO is key to running a successful boardroom. The first challenge, however, is learning where to start. Lucky for you, we recently released the second edition of The CEO’s Boss: Tough Love in the Boardroom, by William M. Klepper. This definitive guide to a productive working relationship between corporate boards and CEOs will provides key concepts and case studies to help you manage your boardroom.

To provide more insight, today we have a guest post from the author himself. In this post, he discusses how implementing “tough love” in the boardroom could have saved Tesla$40 Million this past fall.

Enter our drawing for a chance to win a copy of this book!

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“It’s time for the board of directors to have a ‘come to Jesus meeting’ with Elon Musk,” said William Klepper, a corporate governance expert who is a professor at Columbia Business School and author of The CEO’s Boss: Tough Love in the Boardroom.

The board can’t sit back and watch this destruction of value because of the uncertainty of behavior the CEO is presenting to the public. There’s not debate or question it’s Elon Musk’s company — he’s the genius behind it. That doesn’t mean, if you’re publicly traded, that the board of directors is the cheerleading squad for the founder. They have other people’s money and have a responsibility to them,” Klepper said. ~ Youn, Soo. “Tesla board needs ‘come to Jesus’ meeting with Elon Musk amid company turmoil: Expert.ABC News, Sep. 7, 2018

My statement to ABC NEWS about Elon Musk and his Tesla Board is example of a company that would benefit from “tough love” in the boardroom. Musk faced a probe from the Securities and Exchange Commission (SEC) regarding a possible violation of regulations after he mused in a tweet about taking the company private on August 7, 2018.

Instead of showing “tough love,” Tesla learned an expensive lesson at a cost to shareholder value. Elon Musk accepted a fine of $20 million from the SEC and lost his chairmanship of the Tesla Board. The SEC also fined Tesla $20 million dollars which would be returned to shareholders. Had the Tesla Board treated Elon sternly with the intention of helping him over the long run, he and the company would have that $40 million to invest in the growth of the business.

“Remember, particularly when you see this behavior — possibly violating SEC regulations, remember Elon Musk is playing with other people’s money. It’s not his money. One thing you don’t do is tweet you’re going private and you have funding,” Klepper said.~ Youn, Soo. “Tesla board needs ‘come to Jesus’ meeting with Elon Musk amid company turmoil: Expert.ABC News, Sep. 7, 2018

A board can benefit from those who study CEO tenure and company performance as well as the requisite leadership behaviors to achieve success in at the various stages in the lifecycle of their business. Boards must intentionally address these realities with the appropriate amount of tough love in the boardroom to prevent the company and CEO from becoming dysfunctional.

In the 2nd edition of The CEO’s Boss: Tough Love in the Boardroom, I renew the paradigm set forth in the first edition, with new case studies of companies such as Wells Fargo, BP, Hewlett-Packard, and Proctor & Gamble, giving directors, executives, investors, and stakeholders the tools to make crucial relationships work. I detail the best techniques for selecting the right CEO, establishing a working relationship, and giving effective feedback, and I affirm the importance of the social contract between directors and their CEOs, encourages directors to embrace their independence and teaches executives to value tough love.

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