On February 25, 2019, the SEC sought a court order for Elon Musk to show cause on why he shouldn’t be held in contempt for violating a previous agreement with the Commission. Part of that previous agreement required Musk to comply with pre-approval procedures on tweets—this was before Musk tweeted any company information. Musk then apparently blew it with an inaccurate tweet about Tesla’s production volume in 2019.
This is a costly distraction for Tesla that is already struggling with many issues. Business owners and CEOs watching this slow-motion debacle have their own social media challenges and wonder how social media affects their companies and brands when an employee is posting things that could adversely impact their businesses? Do employees enjoy freedom of speech protection by social media posts?
What are a CEO’s words worth? In Elon Musk’s case, they are getting costlier almost by the day. Last August, America’s great innovator tweeted, “Am considering taking Tesla private at $420. Funding secured.” Through a settlement agreement with the SEC, that tweet cost Musk and Tesla $40 million, about $4.4 million per word, and required Tesla to supervise and approve Musk’s communications.
The SEC is now looking to hold Elon Musk’s feet to the fire for that agreement. The October 16, 2018 agreement specifically required Musk to seek pre-approval for any written communications, including social media posts, that contained material information affecting Tesla’s shareholders.
That was then. Come February of this year, Musk tweeted that “Tesla made 0 cars in 2011, but will make around 500k in 2019.” Approximately 24 million people saw that tweet. Musk later corrected his earlier tweet stating “[m]eant to say annualized production rate at end of 2019 probably around 500k, i.e., 10k cars/week. Deliveries for year still estimate to be about 400k.”
These consequences are not merely lunch money for Musk and Tesla
The very next day, the media reported that Dane Butswinkas, Tesla’s general counsel, was leaving the company after only two months. Apparently, Butswinkas was throwing his hands up. His departure came after approximately 50 senior executives left Tesla over the last two years. Is it possible to measure the impact of the exodus of key decision makers from the organization? Actually, you can. Ask the numerous investors who have been stunned into selling their shares just because they didn’t want to be on a roller-coaster ride into investment hell.
On Feb. 25, the SEC filed its most recent Motion. At this point, it seems clear that Tesla’s Board of Directors is facing significant challenges, not only with operational and financial matters, but with directing a brilliant innovator who struggles to understand the adverse effects of social media posts. It’s a tough job managing an iconic CEO.
What companies over the world are seeing in writ large at Tesla is also being experienced at the local business level. Employees are engaging in vitriolic exchanges or making overtly political statements on social media that company owners don’t appreciate and don’t want. Do employee social media posts affect the businesses they work for? Do the employees have Constitutional protection to express those thoughts?
Whenever anyone’s speech is curtailed, most Americans think of the First Amendment’s protection of speech
However, The First Amendment protects citizens from the government, not private parties. Private employers are not restricted the same ways federal and state government employers are. That is not to say private employers can quash any speech from their employees. They can’t. Federal legislation, specifically, the National Labor Relations Act, happens to protect employee conversations about the conditions of their employment—think—benefits, the conditions of their work environments, and salary. Does this law protect employees from posting inane comments about their frustrations on political matters or exasperating moments with customers or clients?
The fact of the matter is this: the vast majority of workers (some estimates are in excess of 75 percent) access social media at their place of employment from their work computers. It makes sense for employers to dig into the law and find out specifically what matters can and cannot be disciplined. The question that naturally develops is this—should company owners care? Of course they should. The sad fact of America these days is that we live in a culturally and politically charged time where offense is easily taken and business decisions can be made based on political affiliation. Most sensible owners do not want customers or clients to make decisions based on what could be perceived as over-heated and/or half-baked political arguments. Instead, they would prefer decisions based on the quality of their products and services. Which takes us back to Tesla.
There is another dimension to Musk’s tweets that are making me wonder about his demonstrated resistance to the SEC
As an attorney, I am a professional skeptic. Musk is brilliant and as such, I need to ask—what’s so hard about playing nice with the government, especially after executing a very public agreement saying you would play nice? Answer: you want the SEC to do something overreaching so you can blame them. In other words, it’s not death by social media, but a rescue through baiting the SEC into overreaching, then shifting blame to the government for interfering with your brilliance. Who knows, he might just pull it off. Would employees do something similar—bait management into some sort of overreaching reaction to inappropriate social media posts?
It seems like it should be common sense that everyone, from CEOs to employees, thinks about what they are posting on social media and how those posts affect their place of employment. The best way to do that is to think “strategy first.” A business needs to outline what they are trying to accomplish, understand the legal constraints, put a policy in place, and educate their teams. Most businesses, even those that are well run, take a reactive stance. The fact is, no one really wants to deal with this issue because freedom of speech, as understood in the popular American psyche, is fundamental to our national DNA. Who wants to mess with the American freedom of speech genome?
The truth is this—common sense is great but isn’t always “common,” and unfortunately when it’s not, tweets can land you in court with the government breathing down your neck. At moments like this, it’s better to be less “brilliant” and do the seemingly mundane task of outlining and educating the business on what is expected. That way, unlike Tesla, you can simply focus on building a great product and not have to deal with litigation with the world watching.
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