Corporate governance is a complex mixture of laws, court decisions, unwritten conventions and personality dynamics. Even in stable conditions, it can be difficult for directors to navigate these factors. When a dominant founder or CEO is added to the mix, governance becomes exponentially more complex.
There have been many examples of these personalities. One of the most prominent was Steve Jobs' leadership at Apple. It would have required a very independent board to rein in the sometimes volatile and abrupt co-founder of the company who presided over some of its most significant successes. Some directors were criticized for being too subservient to Jobs – not surprising, as many of them were hand-picked by the celebrated CEO to serve on the board.
Canada has had its own examples of prominent leaders who exerted extra influence over their organizations. Ted Rogers' stewardship of Rogers Communications is one such example, where directors served on a board that was undeniably shaped by a strong personality.
A prominent example of this playing out in today's corporate world is Elon Musk. Anyone with the title of "the world's richest person" will, intentionally or not, introduce unique elements into corporate governance, and not all of them will be positive. In fact, board members can find themselves violating good governance principles, and even laws, if they do not do their jobs and manage the corporation in the immense presence of a hyper-famous and sometimes micromanaging CEO.
While Musk heads several corporations, including SpaceX and X, we will focus only on his automobile company. Tesla's governance under Elon Musk exemplifies the complex challenges boards face when a dominant CEO wields disproportionate influence over corporate strategy, culture, and stakeholder perception. For Canadian directors navigating similar dynamics, balancing fiduciary obligations with the realities of founder-centric leadership requires heightened diligence. Granted, few companies have a presence like Musk's, but any organization with a famous, influential or even charismatic leader can encounter similar issues. Let us look at five critical considerations for boards operating in this context, anchored in Canadian corporate law and illustrated by Tesla's ongoing struggles.
1. Ensuring Board Independence Amidst Entrenched Influence
One of the big challenges at Tesla is that Musk's dominance has led to a board historically perceived as deferential, with members maintaining significant financial ties to him. For example, Tesla directors collectively hold over $1 billion in stock options and have joint investments with Musk in other ventures.1 There are also personal connections: Musk's brother Kimbal, for example, is a member of the Tesla board. Such entanglements risk compromising independent oversight.
While Tesla operates under an American legal framework, Canadian corporate law has some distinctions. For example, under the Canada Business Corporations Act (CBCA), and most provincial legislation, directors must act "honestly and in good faith with a view to the best interests of the corporation". This requires directors to disclose conflicts-of-interest and recuse themselves from voting on matters where their objectivity could be compromised.
While not legally mandated, boards should adopt governance structures that mitigate overreliance on a single individual, such as separating CEO and chair roles (a step Tesla only took to settle a Securities & Exchange Commission investigation). The roles are so different, and require such different perspectives, that it is much less common in Canada for those roles to fall to a single person.
Tesla's board approved Musk's $56 billion compensation package despite a Delaware court ruling that the process was "deeply flawed" due to Musk's undue influence over negotiations.2 Canadian boards must avoid similar pitfalls by ensuring independent committees lead executive compensation decisions.
2. Managing Conflicts of Interest
Conflicts of interest take many forms. Musk's role as a Trump administration advisor through the United States Department of Government Efficiency (DOGE) has diverted his attention from Telsa, elevated his political visibility, and drawn sharp criticism. Such external commitments create inherent conflicts. At the time of writing this, Musk has signaled that he intends to step away from some of his DOGE activities, but will still be there for "1 or 2 days per week." When you add his significant other responsibilities for SpaceX, X, and other ventures, directors should be assessing whether his time commitment to Tesla is sufficient.
Directors must proactively assess whether a founder's external engagements harm corporate interests. The BCE Inc. v. 1976 Debentureholders decision3 emphasizes that while stakeholder interests (e.g., shareholders, employees) can inform decisions, the corporation's long-term health remains paramount.
It is not hard to see where these outside activities have affected the auto manufacturer. Musk's political activities have alienated Tesla's traditionally progressive customer base, with some vehicles sporting stickers criticizing his affiliations, public demonstrations, and even reports of arson targeting vehicles and dealerships. Ultimately, his actions have contributed to Tesla's declining sales and share price. In such circumstances, directors must weigh the reputational and operational risks of a founder's external persona, and step in where necessary to protect the corporation.
3. Ensuring Effective Challenge
Another challenge is upholding the directors' fiduciary duties in a founder-dominated culture.4 Boards in founder-led companies must be more than ceremonial. Musk's apparent preference for a "rubber-stamp" board5 clashes with fiduciary obligations to exercise independent judgment. Tesla's lack of a clear turnaround plan amid falling sales and stock prices underscores this tension. Interestingly, Tesla's own web page on corporate governance describes Musk as their "Technoking." While this might be a cheeky nod to the company's start-up mentality, referring to the CEO in authoritarian terms reflects a deeper imbalance in governance and power dynamics.
Tesla's board has faced criticism for not addressing Musk's erratic public statements or formulating a coherent response to rising competition from Chinese automakers like BYD. Canadian directors must ensure robust debate, even when founders resist scrutiny. The fiduciary duty to act in the corporation's best interests requires directors to challenge management when necessary. Boards should foster a culture of constructive dissent, ensuring founders do not monopolize strategic discussions and decisions.
4. Implementing Robust Succession Planning
Another key responsibility for boards is succession planning. Tesla's market valuation remains heavily tied to Musk's persona, with analysts attributing approximately 75% of its stock price to his promised (but undelivered) technologies like independent autonomous driving.6 This dependency creates systemic risk. There have even been reports that the board has explored replacing Musk as CEO, given concerns about how his activities are dragging down the brand value of Tesla.
Succession plans must be iterative and stress-tested against scenarios including sudden founder departures or loss of investor confidence. Proactively identifying internal or external candidates helps mitigate overreliance on a single leader.
Despite investor pressure, Tesla's board has not publicly outlined a succession plan, leaving the company vulnerable to leadership vacuums and fallout from the CEO's personal conduct.
5. Ensuring Transparent and Proportionate Executive Compensation
Executive compensation is one of the clearest tests of board independence. Musk's $56 billion pay package, rejected twice by courts for non-compliance with governance laws, highlights the risks of founder-centric compensation structures and governance that serves personalities over principles.
Canadian compensation committees must align pay with performance metrics that benefit all stakeholders, not just founders. The BCE decision's emphasis on "fairness and proportionality" applies here. Transparency in disclosing compensation rationale is critical to avoiding governance disputes.
The Delaware court noted Tesla's board failed to disclose Musk's role in designing his own compensation package, misleading shareholders. Canadian boards must ensure arm's-length negotiations and full disclosure.
Conclusion
In navigating founder-dominated governance, Canadian directors must balance deference to visionary leadership with unwavering adherence to fiduciary principles. Tesla's struggles serve as a cautionary tale: boards that fail to assert independence risk breaching their duties, eroding stakeholder trust, and jeopardizing long-term corporate viability.
These struggles are not limited to large multinational corporations. Even smaller businesses may need to balance good governance practices when dealing with highly visible or influential leaders. Procido's Governance Group can provide advice to boards and directors to ensure best practices are implemented and followed. Contact us for more information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
