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Positive Management Changes Boost Tesla Shares

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It’s an understatement to say that 2018 was a tumultuous year for electric automaker Tesla (TSLA - Free Report) . In Q3, the company finally made good on its promise to produce and sell the mass-market Model 3 in significant numbers, producing the positive cash flow and net profits that investors have long waited for.

It certainly wasn’t easy, however, and many of the positive and negative developments along the way have centered on a single individual – Tesla CEO Elon Musk.

Musk is undeniably the dominant creative force behind Tesla and there’s a reasonable argument that Tesla might not even exist without him. His obsession with reducing the world’s dependence on fossil fuels and his willingness to sacrifice himself – for instance sleeping inside the factory for weeks on end during a particularly difficult period during the Model 3 manufacturing process – is legendary.

Equally legendary, unfortunately, is some of Musk’s more unconventional behavior.

Twitter wars, taunting short-sellers, selling novelty flame throwers, even appearing to smoke marijuana during an interview on comedian Joe Rogan’s podcast – it was all entertaining fodder that could be chocked up to the antics of the “eccentric genius.” Collectively, we scratched our heads, but it was mostly harmless distraction.

Except for that one infamous tweet:

When Musk, as an officer of a public company, made a claim about a potentially imminent corporate action – including a specific price that was significantly higher than the then-current market price – and stated that funding was “secured,” many believed that he had crossed the line from entertainment into potential securities fraud.

That’s the way the SEC saw it, and they charged Tesla and Musk with fraud in association with that tweet. In a settlement of those charges, Musk agreed to step down as Chairman of the Board for a period of at least three years, Tesla would appoint two new independent directors to the board, put in place new procedures to monitor Musk’s public communications and both Tesla and Musk personally would pay $20M fines.

The new Chairman, Robyn Denholm, was appointed in November, the fines have been paid (with Musk buying an additional $20M in shares from the company to reimburse investors, symbolically paying the entire $40M himself), and the communication controls are in place.

All that was left was the appointment of the new directors - and on Friday we got that news.

Tesla picked two winners and the markets are cheering the appointments with Tesla shares up $15/share – or almost 5% - at midday.

One of the new appointees is Kathleen Wilson-Thompson, Global Human Resources Officer for Walgreen Boots Alliance (WBA - Free Report) , a previous director at two other public companies.  Wilson-Thompson is the consummate corporate professional with an impeccable resume that includes experience at the highest levels of human resources at large companies as well as a Juris Doctorate degree and an LLM in corporate and finance law.

The other appointee is Oracle’s (ORCL - Free Report) Larry Ellison, a longtime Tesla bull and investor who has his own experience as the iconoclastic founder of a tech company, having taken Oracle from a tiny start-up in 1977 to the $163B market cap software giant it is today. Ellison is in a unique position to understand Musk’s full-speed-ahead impulses, while also possessing the experience that should help Musk channel those impulses in a positive direction.

A previous criticism of the Tesla board of directors has been that it has been too “chummy” and willing to bend to Musk’s will. The holy grail for Tesla would be to combine Musk’s creative genius with more conventional corporate governance.

These two new appointments go a long way toward achieving that goal and can only be seen as extremely positive news for Tesla.

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