Musk declares himself CEO for life
Add Axios as your preferred source to
see more of our stories on Google.
Photo illustration: Aïda Amer/Axios. Photo: Marc Piasecki/Getty Images
Space X is going public, but not really: Elon Musk will retain a vise-like grip on the company he runs, its initial public offering filing shows.
Why it matters: It's the largest IPO history and as such will reshape the fabric of the public markets and may set a new standard for how companies are run.
The big picture: Investors who buy SpaceX when it lists will have little control over how the company operates and almost no ability to force Musk off his perch.
- Investors likely won't mind. In fact, the Nasdaq has already rewritten its rules for SpaceX, and the S&P 500 is mulling changes, as well.
Between the lines: Ostensibly, part of the benefit of investing in a public company is that shareholders, as the legal owners, have some sway over the company's management.
- And the public benefits, too, because companies need to be more transparent about their finances and the risks they face.
- That "good governance" function has faded in recent years, as companies have become more savvy at developing dual-class stock structures that give founder-CEOs more voting power.
- The SpaceX filing takes this dual-class structure to a new level.
How it works: Holders of class A shares of SpaceX get a single vote per share. Class B shares, held by company insiders, give holders 10 votes. Musk, who is the majority class B holder, has a stunning 85% of the voting rights in the company.
- Class B holders get to decide the big questions. When they sell their shares, the B's convert to lower-status class A — unless Musk is the one buying. It's a way for him to retain enormous control.
- Because of this, the only person who can remove Musk as CEO or chairman is Musk himself (as long as he holds the majority of class B shares).
From the filing: "Mr. Musk will be able to control the outcome of matters requiring shareholder approval."
- "Mr. Musk will only be subject to removal from the board and from his Chief Executive Officer and Chairman of the board leadership positions with the approval of the holders of at least a majority of the voting power of the outstanding shares of our Class B common stock, voting separately as a class."
- Public shareholders have essentially no say. Musk's control "will limit or preclude your ability to influence corporate matters and the election of our directors," the filing warns prospective investors.
What they're saying: "This set of extreme governance provisions will essentially eliminate investor input into the company for the duration of its life," says Dorothy Lund, a professor at Columbia Law School who studies securities law.
- "In a public company, you think there's going to be an opportunity for accountability, and I don't know where it's coming from here."
Flashback: At Tesla, Musk has long chafed at public company rules.
- With SpaceX, he appears to have put some of the lessons he's learned into practice.
What to watch: Investors are high on Musk now — his fans have driven the stock price of Tesla up up up. But the idea of a CEO for life brings risk.
- "Business history teaches us that business leaders who are exceptional at one point in time often cease to be so over time," corporate governance experts from Harvard Law School wrote earlier this week.
- "Will Musk still be the best leader for SpaceX in, say, 30 years, when he is 84 rather than 54? Even his most fervent admirers should rationally recognize that there is a substantial risk that he will not be."
The bottom line: Musk, through his personality and social media posting, has helped spur the rush of everyday people to buy stocks, something finance companies like to frame as "democratizing investing" — but SpaceX looks more like a monarchy.
