Elon Musk’s New Master Plan: Brilliant, Devious, or Both?

When Tesla announced it had agreed, in principle, to purchase SolarCity, many analysts were shocked.  Not only does the deal represent a merger of two innovative companies, neither of which is currently turning a profit, but many analysts also believe the deal represents a massive conflict of interest. Elon Musk founded Tesla in 2003 and remains Tesla’s CEO.  Musk also founded SolarCity, which is the United States largest solar power provider. Musk is currently SolarCity’s Chairman.  Musk is also the largest shareholder in both Tesla and SolarCity, holding over twenty percent of each company.  As if Musk were not entangled enough, the current CEO of SolarCity is Lyndon Rive, and the company’s CTO is Peter Rive.  Lyndon and Peter Rive are Musk’s cousins. As a result of Musk’s many connections to both SolarCity and Tesla, many corporate governance experts have said the deal suffers from a blatant conflict of interest on the part of Musk. However, Tesla and SolarCity have taken several steps to ensure the propriety of the deal.  First, in order to allay any concerns about a conflict of interest, independent board members were brought on to review, and ultimately approve, the acquisition.  The next step required in finalizing the deal is to gain shareholder approval by a majority vote of each company’s respective shareholders.  At first glance, this step seems to actually exacerbate the conflict of interest because Musk owns twenty percent of the outstanding shares of both companies.  However, as part of the conditions of the deal, Musk and his affiliates have recused themselves from voting on the deal. Musk’s absence from the vote allows...