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If James Murdoch is the new Tesla chairman, that’s bad news for Elon Musk

If James Murdoch is the new Tesla chairman, that’s bad news for Elon Musk


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Ladies and gentlemen, we have board drama at Tesla! I live.

I’m going to read some tea leaves, because James Murdoch very rarely speaks on the record. Last week, The New York Times indicated that “some directors” thought Murdoch might do a really good job as the new chairman of the Tesla board, now that Elon Musk is being forced by SEC settlement to step down.

I’d bet $420 that James Murdoch is among the directors who think James Murdoch is the front-runner

I’d bet $420 that James Murdoch is among the directors who think James Murdoch is the front-runner, based on one sentence, which has one very likely source: “But Mr. Murdoch hasn’t volunteered for the post nor has he discussed it with any other director.” Here’s the tea leaf part: Only Murdoch knows whether he’s had that discussion or not. Even a confidante or assistant couldn’t categorically speak to all of his conversations; you’d need a clause that says “to the best of the source’s knowledge.” It’s possible that NYT talked to all the other directors to write that sentence, but I have a reason to think that’s not true: the lack of a sentence that reads, approximately, “Murdoch declined to comment.” This suggests Murdoch commented — just not on the record.

This week, The Financial Times is following up to say that yes, James Murdoch is, in fact, a front-runner:

Two people briefed on the discussions said Mr Murdoch, who is currently a non-executive director of Tesla, was the lead candidate for the job, which is required by the SEC to be an independent chairman. Another person said external options were still being considered.

Probably it’s worth noting that Murdoch referred comment to Tesla, so he’s likely not one of the two people leaking to FT that he’s the lead candidate. Honestly, at this point he doesn’t have to! He already told the NYT!

What’s really notable here happens in this graf, though:

Mr Musk is also known to favour Antonio Gracias, Tesla’s lead independent director, but has been advised Mr Gracias may not be sufficiently independent because of his long-term involvement with Mr Musk’s companies. Mr Gracias’ firm, Valor Equity Partners, invested in Tesla in 2005, selling its shares in the company’s IPO in 2010. He also invested in SpaceX, Mr Musk’s rocket business.

Interesting. Musk responded to an FT tweet that linked the article, rather simply saying: “This is incorrect.” I’m not totally sure what the antecedent of the “this” is in the tweet — that Murdoch is the front-runner? That Musk favors Gracias? All of it? — but I also know that if there is a boardroom brawl shaping up, and it looks like there is, it’s in the best interest of the whole company to deny it. Indeed, Musk is known for denying things that are true just to troll people, so who knows if any of this is “incorrect.”

Both Gracias and Murdoch are reportedly friends with Musk. So why might Musk prefer Gracias to Murdoch?

So why might Musk prefer Gracias to Murdoch?

Gracias’ first private equity firm failed after four years. His next one, Valor Equity — established in 2001 thanks to some sweet, sweet government loans — first dealt with wrinkle cream marketers, rope factories and makers of plastic payment cards, according to the FT. In 2005, Gracias invested in Tesla, cashing out when the carmaker went public in 2010; he also invested in SpaceX, Musk’s rocket venture, and possibly in SolarCity, the solar panel company Tesla bought in 2016. He was also involved in Musk’s Boring Company deal with the city of Chicago, as a prominent donor to Rahm Emanuel.

So he’s in deep with Musk, and he owes Musk a lot. Those two things might allow Musk to retain more control than he would with Murdoch.

Murdoch is the second son of Rupert Murdoch, the media mogul best known for the sleazy tabloid empire that in the US includes Fox News and in the UK included printing actual uncensored tits in its papers until 2015. Like many people in media, I have viewed it as a critical matter of survival to keep a sharp eye on what the Murdochs are up to, because they have a tendency to Kool-Aid Man into a publication and Murdoch up the joint: new (often Australian) editors, shorter articles, punchier headlines, more photos. Oh yeah! Shortly after I got my first full-time job in journalism, News Corp made a huge unsolicited bid for The Wall Street Journal and essentially clowned the Bancroft family into giving up the paper. (James was heavily involved, according to Michael Wolff’s The Man Who Owns the News, a biography of James’ father.)

James Murdoch, Harvard dropout, started out in business with a record label, Rawkus Records (the lineup included Pharoahe Monch, Mos Def, and Talib Kweli); it was acquired by his father’s company in 1996, with Murdoch taking point on the music and internet businesses at News Corp at just 24. At 27, he was sent to Asia where he revitalized a Hong Kong television service; at 30, he became CEO of BSkyB. He took over as CEO of 21st Century Fox in 2015, but he will not stay with the company once the acquisition by Disney is complete.

Murdoch has gone mostly from success to success with one exception: the phone-hacking scandal. Murdoch stepped down as CEO of BSkyB in 2007 to take on a role back at the mothership, News Corp., as the executive chairman of News International (that’s the Brit part of News Corp.). It was under his leadership that the phone-hacking scandal became public. Basically, reporters had been using the factory-standard PINs to get into people’s voicemail, usually celebrities’. No one especially cared until it came out that The News of the World used the default pin on the phone of Milly Dowler, who’d been kidnapped and killed in 2002. In 2011, Murdoch shut the paper down and testified before Parliament about a settlement he’d approved. It’s still unclear how much he knew.

Murdoch has a reputation as a defenestration artist

Frankly, I doubt Musk especially gives a shit about Murdoch’s role in the phone-hacking scandal. What I bet does make him nervous is Murdoch’s reputation as a defenestration artist. Murdoch is more adept with the media than Musk — except Murdoch prefers to stay off the record. He, along with his brother Lachlan, is the likeliest primary source for much of Gabriel Sherman’s The Loudest Voice in the Room, a 2014 biography of Fox News founder and Nixonian dirty trickster Roger Ailes. The book wasn’t enough to get Ailes out of the paint, but a sexual harassment scandal at Fox News was. Murdoch also got rid of Bill O’Reilly in the process.

Gracias is beholden to Musk; Murdoch has his own ambitions. And if Murdoch thinks Musk’s behavior — on Twitter or otherwise — is out of line, chairman Murdoch could theoretically convince enough of the board to fire Musk.

As it happens, Musk has been fired as CEO before: from the company that became PayPal. According to The PayPal Wars by Eric M. Jackson, Musk was dethroned in part because he wanted to retire the PayPal brand in favor of X, the original name of his startup — and move customers to a new platform in the process. Jackson’s take is both badly written and self-serving, but his assessment (branding problems, bad tech infrastructure) was echoed in Ashlee Vance’s Musk biography by other sources. “I think it would have killed the company if Elon had stayed on as CEO for six more months,” Roelof Botha, former CFO of PayPal, told Vance.

The job of a corporate board is to act on behalf of the shareholders, and shareholders seem like they are maybe not super happy with Musk right now

The job of a corporate board is to act on behalf of the shareholders, and shareholders seem like they are maybe not super happy with Musk right now? Liiiiiiike, shares of Tesla started the year on Jan. 2nd at $320. They closed Thursday at $252. Besides the production problems, the delivery problems, and the executive retention problems, there’s the Elon Musk problem. The distraction of the “go private” tweets in August are part of what put Murdoch in position to be chairman in the first place; the SEC settlement requires Musk leave the chairman seat. And the settlement is for… securities fraud — which is not likely to be a minor issue for investors. (Indeed, many are suing over it.)

The other things — smoking weed and drinking whiskey on the Joe Rogan show, the Azealia Banks feud, the libel case from a British cave diver — are the kinds of things you can ignore, probably. Like, yeah, it’s distracting but it’s… look, it’s Elon Musk. Weird shit is part of the package (Remember the McLaren?). But when the weird shit leads to the company paying a $20 million fine to settle a securities fraud case, a DOJ investigation, and shareholder lawsuits… that’s the kind of thing a board needs to take seriously. Arguably, it’s why the SEC settlement requires more independent board members and a new chair in the first place! It’s a fairly strong indication that the SEC thinks the board as it currently exists is not powerful enough to act in the shareholders’ interests!

About the only person on the board who’s enough of a ruthless bastard to rein Elon Musk in — or fire him, if it comes to that — is James Murdoch. Musk knows that, too. If Musk truly wants to outwit Murdoch, he’d better abandon the Gracias plan and pick a new independent board member to serve as chair instead. Because if Murdoch does take the board, part of his duties include succession planning for senior executives. That’s probably not good news for Musk.

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