Tesla Motors founder Elon Musk has once again demonstrated business leadership by offering a business solution to climate change. Musk’s act of leadership is to open-source his company’s invaluable intellectual property for building world-class electric cars to the global auto industry. Musk’s actions must look crazy to many business leaders and Wall Street “financial engineers,” and they must be questioning whether it violates Musk’s fiduciary obligation to shareholders. In fact, Musk has once again demonstrated real business leadership by creating a viable path to solving climate change that also holds the potential of accelerating his company’s financial success.
100 million fossil fueled vehicles per year is not sustainable
The global auto industry produces 100 million fossil fuel vehicles annually. (In comparison, the U.S. fleet of automobiles is approximately 250 million.) This is not sustainable in the face of climate change, continued sectarian wars in the Middle East, and the price of oil defined by its escalating and volatile pump price. Electric cars with their zero tailpipe emissions, especially if the electricity is supplied from zero-emissions renewable energy like solar and wind, is a solution. Musk’s vision is that the electric car can deliver exciting performance and cost-effective operations without damaging our planet or our health. Musk’s actions to remove the legal barriers to his company’s cutting-edge technology opens the door to realizing a sustainable car industry.
Musk defines business leadership
With rare exceptions, corporate business leadership today is defined by the CEO’s fiduciary responsibility to investors. The reward for this practice is evident by the fact that CEO compensation between 1978 and 2013 has jumped an inflation-adjusted 937 percent. The CEO compensation among the largest 350 U.S. companies now averages $15 million per year. In comparison, during this time period the stock market’s valuation only doubled. The income for the typical worker during this time period grew only 10.2 percent.
During this time period, did this CEO focus on fiduciary responsibility deliver sustainable solutions? Based on the evidence, the answer is no. We are just now recovering from a Great Recession created by CEO actions that lacked prudence in their management of debt and business policies. We now view in our mirrors the consequences of eating an industrially manufactured diet promoted through value meals that has made us fatter and created a global obesity epidemic. The execution of fiduciary responsibility defined by realizing quarterly profits has created a fossil fuel-based economy where we are addicted to oil. To protect our addiction we have engaged in several Middle Eastern wars that have cost trillions of dollars plus thousands of causalities without solving the negative economic impacts of pump price pain. And our fossil fuel addiction has also delivered climate change that threatens our health and wealth through increasingly volatile storms and weather extremes.
Musk’s leadership is a challenge to every CEO. Sustainability is not a poor sister to the CEO focus on quarterly profitability. Sustainability is at the core of every business purpose and the key element of business strategy. If a CEO is not delivering sustainable solutions, then they will not deliver sustainable profits. Winning profits by abusing credit is not sustainable. Winning profits through the creation of oligopolies that can dictate consumer prices is profitable but highly damaging to a free market economy and a democratic form of government. Growing profits through political lobbying to win tax benefits not tied to a sustainable benefit is a threat to society. Without overvaluing Musk’s efforts, his action to balance fiduciary responsibility in pursuit of sustainable solutions is the definition of business leadership.
Musk’s sustainable solution is good business
Musk’s choice to open-source his company’s patents is also good business. Sustainable solutions must achieve mass production to gain the economies of scale that enable competitive pricing. The solar industry has proven this in the states that allow net metering. The fall in panel price due to economies of scale has made rooftop solar price-competitive with retail electricity prices.
This is Musk’s strategy for electric cars. Electric cars must achieve manufacturing economies of scale to become price competitive against fossil fueled cars. Electric cars need the same extensive recharging network as we now have for gasoline. Musk is opening Tesla Motors’ patents to the auto industry to accelerate the path to lower prices through economies of scale. He does so confident that his company will be competitive in this envisioned larger market. That is good business. It is also leadership. Combined, it offers real hope to creating sustainable solutions for energy independence, economic growth and climate change.
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017