Lessons in corporate governance from the Trump-Musk spat

Summary

Marketplace Morning Report: Lessons in Corporate Governance from the Trump-Musk Spat Release Date: June 6, 2025

In this compelling episode of the Marketplace Morning Report, host David Brancaccio delves into the tumultuous relationship between former President Donald Trump and Elon Musk, exploring the broader implications for corporate governance. Through an insightful conversation with Eric Gordon, a professor at the University of Michigan's Ross School of Business and a seasoned corporate lawyer, the episode dissects the challenges companies face in managing influential CEOs and the delicate balance of power within corporate structures.

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The Trump-Musk Conflict: A Catalyst for Discussion (00:48)

David Brancaccio sets the stage by highlighting the public fallout between President Donald Trump and Elon Musk. The dispute centers around Musk's criticism of Trump's signature tax and federal program-cutting bill, which Musk deems "bloated and financially destructive." This conflict has escalated to personal attacks, with Trump threatening actions that could adversely affect Musk's prominent companies, including SpaceX and Tesla.

Key Points:

• Public Dispute: Musk's vocal opposition to Trump's policies has led to a high-stakes public conflict.
• Corporate Impact: Threats from the President could potentially harm the operational and financial standing of Musk's enterprises.

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Corporate Governance and Fiduciary Duties (01:31 – 03:56)

Brancaccio introduces Eric Gordon to unpack the intricacies of corporate governance highlighted by the Trump-Musk spat. Gordon emphasizes the fiduciary duty of CEOs and board directors to protect shareholder interests—a legal obligation to act in the best financial interests of the company and its shareholders.

Notable Quote:

Eric Gordon [01:55]: "Called a fiduciary duty in the law. That's a really high duty to protect the interests of the shareholders."

Discussion Highlights:

• CEO Responsibilities: CEOs are expected to prioritize shareholder value over personal or extracurricular activities.
• Board Dynamics: Despite their responsibilities, boards often act as "lapdogs" to CEOs, especially when the CEO holds significant shares, diminishing the board's authority to enforce accountability.
• Shareholder Influence: If a CEO like Musk possesses substantial shares, he can potentially override or remove board members, limiting the board's effectiveness in governance.

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Presidential Influence and Regulatory Actions (03:02 – 04:19)

The conversation shifts to the role of the President in corporate affairs. Traditionally, presidents exert influence through regulatory bodies like the IRS and SEC, often without public acknowledgment. However, Trump's open threats against Musk mark a departure from this norm.

Notable Quote:

Eric Gordon [03:37]: "It's unusual that the President does it publicly. Usually, they do it sort of secretly."

Key Insights:

• Public vs. Private Pressure: Trump's public stance contrasts with historical practices where punitive actions against business adversaries were conducted discreetly.
• Precedents: Historical figures like Presidents Nixon and Franklin D. Roosevelt have used the IRS to target political foes, but typically behind the scenes.
• Regulatory Relations: The existing tension between Musk and the SEC underscores the complexities when regulatory bodies are influenced by political leaderries.

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Market Reactions and Corporate Strategies (04:42 – 08:37)

Brancaccio updates listeners on the market's response to the Trump-Musk tensions. Tesla's stock experienced a significant drop, erasing over $150 billion in value, while SpaceX remains privately held with less immediate market impact. Discussions also touch upon anticipated peace talks between Musk and Trump, signaling potential de-escalation.

Notable Quotes:

David Brancaccio [04:42]: "Tesla's stock fell more than 14% yesterday, erasing more than $150 billion of that company's value..."

Eric Gordon [03:56]: "A long standing thing. Franklin D. Roosevelt used the IRS to go after his foes."

Additional Topics:

• Market Volatility: The direct impact of political disputes on stock valuations and investor confidence.
• Trade Relations: Brief mentions of U.S.-China trade talks, highlighting the broader economic environment in which corporate governance issues unfold.
• Corporate Power Structures: Emphasis on how ownership stakes can influence a CEO's control over a company's board and, consequently, its governance.

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Conclusion: Navigating Corporate Governance Challenges (08:37 – End)

Wrapping up the discussion, Gordon underscores the necessity for boards to find effective mechanisms to oversee and, if necessary, restrain powerful CEOs to safeguard shareholder interests. The Trump-Musk situation serves as a high-profile case study illustrating the vulnerabilities and responsibilities inherent in corporate governance.

Final Thoughts:

• Board Accountability: Importance of strengthening board independence to prevent undue influence from dominant CEOs.
• Shareholder Rights: Encouraging active shareholder engagement and legal avenues to hold boards accountable when they falter.
• Future Implications: The episode suggests that the evolving dynamics between political figures and corporate leaders will continue to shape governance practices and regulatory frameworks.

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This episode offers a nuanced exploration of how personal conflicts at the highest echelons of business and politics can illuminate fundamental principles and challenges in corporate governance. For listeners keen on understanding the intersection of leadership, legal obligations, and market dynamics, Brancaccio and Gordon provide valuable insights grounded in real-world events.

Transcript

[David Brancaccio]

Hey there and thanks for listening. We want to know more about our audience. Stick around at the end of this episode to hear about how you can help, provide feedback and have a chance to walk away with a $75 gift card.

[Narrator]

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[David Brancaccio]

What the Trump Musk Contretemps tells us about how Companies manage their CEOs David I'm David Brancaccio in Los Angeles. Good morning to you. We'll start with the ugly breakup of the relationship between President Donald Trump and professional businessman and amateur federal budget cutter Elon Musk, who thinks President Trump's signature tax cutting and federal program cutting bill is bloated and financially destructive. As you've been hearing, Musk has gotten personal and Trump is threatening moves that will hurt Musk's companies, including SpaceX and Tesla. There are lessons in corporate governance here. Eric Gordon is a professor at the University of Michigan's Ross School of Business with a long resume as a corporate lawyer. Morning, Eric.

[Eric Gordon]

Hello, David.

[David Brancaccio]

Look, Elon Musk is not some rando gadfly with an Internet connection, right? He's the head of several big companies. Maybe I'm naive, but at a publicly traded corporation, you'd think the CEO would have a duty to not set fire to more than $100 billion in shareholder value because of his extracurricular activities. Yeah, CEOs and board directors have what's.

[Eric Gordon]

Called a fiduciary duty in the law. That's a really high duty to protect the interests of the shareholders.

[David Brancaccio]

And part of that would be the boards of directors, I thought, would have a duty to set limits on activities that make shareholder value vanish.

[Eric Gordon]

You would think so. I mean, they must be get paid for doing something. But those of us who practice corporate law often think of the boards as being the lapdogs of their CEOs. You know, Tesla might be more of a lap puppy kind of board.

[David Brancaccio]

Well, how does that work? You get your friends on the board, I suppose, but also if the CEO owns a lot of the company, the board's power is actually diminished.

[Eric Gordon]

If you're the CEO and you own enough shares to have voting control, you can vote off the island. Any director you don't like.

[David Brancaccio]

Hmm. I mean, maybe there are limits. Unnamed sources told the Wall Street Journal a couple weeks ago that Tesla might be looking for a new boss. The company then denied vehemently. But I was surprised because it seems as if the board doesn't have the effective power to remove them if it ever came to that.

[Eric Gordon]

They don't, but they might have to go through the motions, and here's why. Other shareholders, shareholders who are not named Elon Musk, could sue directors saying they've neglected to do their duties. So once in a while, I think the board has to make some noises like, oh, look, we are trying to do our duty here.

[David Brancaccio]

Then there's the President of the United States, the other counterparty to this dispute. Somebody tweets in ways that are unhelpful to his standing and agenda. And the President's move is to change government rules to punish the guy's companies. That's how it's supposed to work.

[Eric Gordon]

It's not supposed to work that way. Here's what I think is unusual this time around. It's unusual that the President does it publicly. Usually they do it sort of secretly. There's a long tradition of using the IRS and even the SEC to punish your enemies, but you don't announce it in the press.

[David Brancaccio]

Yeah, I mean, it is not unprecedented. President Nixon used the Internal Revenue Service to go after political foes. I think there's strong evidence, and it's.

[Eric Gordon]

A long standing thing. Franklin D. Roosevelt used the IRS to go after his foes. So it is. It's something that presidents know how to do and don't hesitate to do in private.

[David Brancaccio]

Interesting. And not just the irs. Sec, securities and Exchange Commission is sometimes harnessed to punish political foes. Right.

[Eric Gordon]

And we know the SEC and Musk don't get along already.

[David Brancaccio]

Eric Gordon is a professor at the University of Michigan's Ross School of Business, speaking from Ann Arbor. Eric, always good to catch up.

[Eric Gordon]

My pleasure, David.

[David Brancaccio]

Tesla's stock fell more than 14% yesterday, erasing more than $150 billion of that company's value on SpaceX is privately held. So is X. Musk's social media company. Politico is reporting that the White House has scheduled peace talks between Musk and Trump sometime today. Tesla futures this morning are up about 4%. We will get the market moving. Hiring and unemployment reports a little later this morning. To what extent will we see tariff turmoil affecting hiring in those May numbers? We shall see Dow S&P and Nasdaq futures are all up in the 3-4-10th of a percent range. President Trump says his first conversation with Chinese leader Xi Jinping since returning to the White House had a, quote, very positive conclusion. The call did lead to the announcement the two countries will hold trade talks in hopes of breaking an impasse over tariffs and global supplies of rare earth minerals, the Chinese Foreign Ministry says. Xi asked Trump on yesterday's call to remove the negative measures the US has taken against China. Although the US and China lowered their tariffs from the US high of 145%, they're still running at about 30%, factoring in existing import taxes.

[Narrator]

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[David Brancaccio]

Be forewarned. The AMC movie theater chain says it will show even more ads ahead of feature films beginning in July. So if you're there for the ads, knock yourself out. But if you're there for the movie, remember your remote controls. Fast forward does not work in that setting, and some ads will show up between preview trailers. Something new at AMC Marketplace's Henry Epp.

[Henry Epp]

Reports AMC already plays some ads before its movies, usually before the previews. Now it'll offer advertisers a spot after the previews, right before the movie starts. Alicia Reese, who analyzes entertainment companies at Wedbush securities, says companies will likely pay top dollar because you have a perfectly.

[Narrator]

Focused environment where everyone is staring at the screen, lights down, phones away. So it's highly valuable.

[Henry Epp]

Other theater chains have had these ads for years. AMC held off because the company reportedly worried they would anger moviegoers. But Paul Dergarabedian at comScore says they haven't hurt other theaters.

[Paul Dergarabedian]

So I think as long as it's not overbearing, overdone, overly long in terms of the presentation of the prerelease commercials, I think audiences will be fine with it.

[Henry Epp]

And he says it's a good time for AMC to try this. There's a full slate of movie releases this summer after several years disrupted by the pandemic and labor strikes in Hollywood. I'm Henry Epp for Marketplace.

[David Brancaccio]

I don't know, maybe this is all an argument for going to see a live play or an orchestral performance instead. Our digital producer is Dylan Miettinen. Our engineers are Alex Simpson and Brian Allison. In Los Angeles, I'm David Brancaccio. It's the Marketplace Morning Report from APM American Public Media. Really quick, before you go, please complete a short anonymous survey by going to marketplace.org survey. It should only take about 10 minutes. And as a token of our appreciation, you can enter your name to win a $75 gift card. When you've completed the survey, you do all of us at Marketplace a huge favor by filling it out.