WEBVTT - Tesla Will Struggle To Raise Money Without Elon: Kudla (Podcast) 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:30.520 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla 0:00:30.760 --> 0:00:34.360 definitely on the forefront of people's minds this morning after 0:00:34.400 --> 0:00:38.680 the SEC sued Elon Musk for misleading the world frankly, 0:00:38.720 --> 0:00:40.640 but particularly the markets when he said that he was 0:00:40.680 --> 0:00:43.920 going to take Tesla private for four d and twenty 0:00:44.000 --> 0:00:48.120 dollars share, saying that funding was secured when in reality 0:00:48.159 --> 0:00:52.400 it wasn't. Shares now of Tesla down by eleven percent, 0:00:52.600 --> 0:00:56.160 so definitely seeing a big fall there. David Cutla is 0:00:56.160 --> 0:00:59.080 founder and chief executive officer and chief investment strategist of 0:00:59.120 --> 0:01:03.000 Mainstay Capital. David, you're joining us now, you've embarished on 0:01:03.080 --> 0:01:06.960 Tesla all along. What's your take on this? What are 0:01:06.959 --> 0:01:11.000 the declines really stemming from here? Well, the declines today 0:01:11.080 --> 0:01:16.280 or something from the lawsuit by the SEC yesterday announced. Uh, 0:01:16.640 --> 0:01:19.039 just four or five minutes after the close, and we 0:01:19.080 --> 0:01:21.559 saw what happened after hours trading, and of course what's 0:01:21.560 --> 0:01:25.640 happening in UH in trading today and UH, you know 0:01:25.680 --> 0:01:29.360 this is a big problem for Elon Muskin for Tesla obviously, 0:01:30.400 --> 0:01:32.600 David could lad do you ever look at used or 0:01:32.959 --> 0:01:37.920 pre owned car prices when it comes to Tesla? Yes, 0:01:38.440 --> 0:01:40.880 And I was looking, for example, at how they hold 0:01:40.880 --> 0:01:43.880 their value and they don't seem to do so is 0:01:43.920 --> 0:01:47.960 that concerning? I think it should be concerning, UH And 0:01:48.000 --> 0:01:51.240 I think it's interesting too, UH that that they don't 0:01:51.240 --> 0:01:56.080 hold their value as someone might expect. But I think 0:01:56.160 --> 0:02:00.000 Tesla's concerned primary concern right now, they've got some more 0:02:00.120 --> 0:02:05.280 media issues with their UH cash position, you know they're there. 0:02:05.920 --> 0:02:10.400 Will they be able to remain solvent? UH, their production problems, 0:02:10.400 --> 0:02:15.000 their quality problems, their service center problems, UM, and you know, 0:02:15.040 --> 0:02:18.480 just the metrics that they're trying to to hit as 0:02:18.520 --> 0:02:21.240 we go forward here over the coming weeks, months and 0:02:21.440 --> 0:02:23.760 a couple of quarters. Yeah. I mean, David to follow 0:02:23.880 --> 0:02:25.799 up on that when I asked, you know, why are 0:02:25.800 --> 0:02:29.040 the shares falling? Is it because there is a feeling 0:02:29.040 --> 0:02:31.480 that Elon Musk might be kicked out of the position 0:02:31.520 --> 0:02:34.320 of chief executive officer and what that might mean for 0:02:34.360 --> 0:02:37.120 the company, both from a capital raising standpoint as well 0:02:37.160 --> 0:02:40.880 as directional standpoint. Is it because of concerns of fines 0:02:40.960 --> 0:02:43.840 that are going to potentially reduce their capital position further? 0:02:44.240 --> 0:02:47.920 Where's the risk here? Well, it's I think there's a 0:02:47.919 --> 0:02:52.240 couple of rests. So Uh, first it's that that, uh, 0:02:52.520 --> 0:02:55.760 this is an overhang for the company. Um, there was 0:02:55.760 --> 0:03:00.200 an opportunity where this could have been there as a 0:03:00.200 --> 0:03:03.880 settlement in front of Elon Musk in the board on this, 0:03:04.280 --> 0:03:08.680 and h Elon Musk in his in his way, uh, 0:03:08.919 --> 0:03:12.799 decided to push back and fight it. So now there 0:03:12.880 --> 0:03:15.160 is you know, obviously a risk to shareholders as as 0:03:15.200 --> 0:03:17.560 we've seen today. Uh, there will be a risk in 0:03:17.639 --> 0:03:22.720 being able to raise capital and the risk of Elon 0:03:22.800 --> 0:03:25.560 Musk future with the company because he could be barred 0:03:25.680 --> 0:03:28.880 from being a director officer of a public company. And 0:03:28.919 --> 0:03:32.280 that's problematic because you know, there's been estimates that there's 0:03:32.320 --> 0:03:34.720 a hundred dollars or a hundred and twenty dollars or 0:03:34.720 --> 0:03:39.120 a hundred forty dollars in the price of Tesla stock 0:03:39.760 --> 0:03:45.080 as Elon Musk premium. And look, he is a genius 0:03:45.120 --> 0:03:50.480 inventor visionary. You can obviously his his mission is admirable. 0:03:50.960 --> 0:03:54.520 And the people the you know, it's almost a cult following. 0:03:54.680 --> 0:03:57.080 You know, the people that are the customers that are 0:03:57.120 --> 0:04:00.640 there at the delivery center, you know, uh respect they're 0:04:00.640 --> 0:04:03.440 going to a wedding receiving their vehicles. There is a 0:04:03.480 --> 0:04:08.960 loyal following. And if Ellen is gone or is forced 0:04:09.000 --> 0:04:11.880 to be gone from the company, uh, you know, there 0:04:11.880 --> 0:04:13.760 are analysts out there saying, well, that could be good 0:04:13.800 --> 0:04:16.400 because of his erratic behavior and there needs to be 0:04:16.440 --> 0:04:18.919 an adult in the room running the company. The flip 0:04:18.960 --> 0:04:21.560 side of that is what Tesla has going for it 0:04:21.600 --> 0:04:24.800 is is very loyal following who has given Elon Musk 0:04:24.880 --> 0:04:28.640 and Tesla a lot of passes on broken promises, milestones 0:04:28.680 --> 0:04:31.800 that haven't been met, cars that are not good quality 0:04:31.880 --> 0:04:35.960 by a typical standards in the industry. And those people, 0:04:36.000 --> 0:04:38.480 when Elon is gone, they look at Tesla and site 0:04:38.480 --> 0:04:42.400 Tesla's Elon and Elon is Tesla and Elon we trust 0:04:42.440 --> 0:04:46.080 and Elon is gone, they lose that that I think 0:04:46.120 --> 0:04:48.640 they lose a lot. And you know, PIM to David's point, 0:04:48.720 --> 0:04:50.880 there are a number of analysts from JP Morgan and 0:04:50.960 --> 0:04:54.040 UBS at a number of other big firms, saying that 0:04:54.080 --> 0:04:57.119 they are concerned that without Elon Musk at the top, 0:04:57.279 --> 0:04:59.680 Tesla is going to really struggle to raise money. And 0:04:59.720 --> 0:05:01.600 this is a problem because they're running out of cash 0:05:01.920 --> 0:05:05.400 right They're burning they're burning cash. David, could do you 0:05:05.440 --> 0:05:08.520 have any thoughts on the speed with which this action 0:05:08.600 --> 0:05:11.400 by the Securities and Exchange Commission has been brought after 0:05:11.520 --> 0:05:15.600 learning that Mr Musk decided to not go along with 0:05:15.640 --> 0:05:20.360 a settlement. Well, it's it's um you know, when we 0:05:20.400 --> 0:05:22.640 look at it, and you know, we were on Bloomberg 0:05:22.720 --> 0:05:27.600 talking about it that week, it was it just was 0:05:27.880 --> 0:05:33.480 pretty obvious when you looked at the circumstances very quickly 0:05:33.520 --> 0:05:36.000 that it there just wasn't a deal there. And then 0:05:36.040 --> 0:05:38.839 as more facts came out, it became, I think quite 0:05:38.839 --> 0:05:42.920 apparent to a lot of people that, um, this had 0:05:42.960 --> 0:05:44.679 a lot of the elements of what could be called 0:05:44.960 --> 0:05:49.679 stock manipulating or fraud. And I think the SEC knows 0:05:49.720 --> 0:05:51.880 they have an open and shut case. They wasn't. Did 0:05:51.920 --> 0:05:54.000 you hear the report for example that the reason that 0:05:54.760 --> 0:05:56.360 I think it was I can't remember whether it was 0:05:56.400 --> 0:05:58.080 in the journal at the times, but I mean even 0:05:58.080 --> 0:06:02.400 in our reporting that uh, he's selected the actual dollar 0:06:02.440 --> 0:06:07.560 amount of four God, just tell that story. That's it. 0:06:07.760 --> 0:06:10.320 And it was and it was I don't want to 0:06:10.360 --> 0:06:13.279 say amusing, but unusual that it was actually in the 0:06:13.360 --> 0:06:20.160 complaint that the SEC stated that he uh added premium 0:06:20.240 --> 0:06:23.039 to the stock price the time came up with about 0:06:23.080 --> 0:06:27.599 for nineteen rounded up to because of the reference to 0:06:28.600 --> 0:06:31.960 marijuana that that has and that his girlfriend would think 0:06:32.040 --> 0:06:35.080 that was funny and that and that's not me, No, No, 0:06:35.240 --> 0:06:40.000 that's the SEC indeed plane and which is unusual but interesting, 0:06:40.040 --> 0:06:42.680 and I think they wanted to point that out as 0:06:42.680 --> 0:06:45.279 a flip at attitude about everything. And that's that's what 0:06:45.360 --> 0:06:47.800 that's what's key here that we got David. We gotta 0:06:47.880 --> 0:06:50.039 leave it there. Thank you very much for joining us. 0:06:50.120 --> 0:06:54.839 David Coudla, chief executive, chief investment strategist, Mainstake Capital Management. 0:06:55.120 --> 0:07:09.080 You're listening to Bloomberg. John Chambers he is perhaps best 0:07:09.160 --> 0:07:12.440 known as being the chairman and the chief executive former 0:07:12.520 --> 0:07:16.760 chairman and chief executive of Cisco. He began his career 0:07:16.760 --> 0:07:19.960 in technology sales at IBM. He also worked for Wang 0:07:20.280 --> 0:07:25.680 Laboratories before joining Cisco, and he joins US now as 0:07:25.760 --> 0:07:29.240 the author of a new book entitled Connecting the Dots 0:07:29.440 --> 0:07:33.640 Lessons for Leadership in a Startup World. John Chambers, thanks 0:07:33.720 --> 0:07:36.200 very much for being with us, dam and Lisa. It's 0:07:36.200 --> 0:07:38.000 going to be a lot of fun and look forward 0:07:38.000 --> 0:07:40.640 to our conversation. Well, I just want to give full 0:07:40.680 --> 0:07:46.880 disclosure that I first met John Chambers at a diner 0:07:47.240 --> 0:07:51.520 in Silicon Valley with another gentleman named Eric ben Hammou 0:07:52.080 --> 0:07:54.720 and he at that time was running a company called 0:07:55.080 --> 0:07:57.760 three Calm. And we know what happened to three Calm, 0:07:58.080 --> 0:08:02.560 which is it doesn't exist necessarily in its form anymore. Cisco, 0:08:02.680 --> 0:08:07.080 on the other hand, went on to bigger and better things. John, 0:08:07.480 --> 0:08:09.640 maybe you could tell us why you wrote the book 0:08:09.960 --> 0:08:15.480 and why you believe that startups really demand a different 0:08:15.560 --> 0:08:18.320 level of attention, and how you ran Cisco as a 0:08:18.400 --> 0:08:22.000 startup really until you left. Well, thank you, Pim, and 0:08:22.040 --> 0:08:25.240 I very much remember that conversation because Eric is an 0:08:25.240 --> 0:08:29.720 excellent CEO and what it talks about, and I decided 0:08:29.720 --> 0:08:33.720 to right to book. Originally, I don't like writing. I'm dyslexic. 0:08:33.800 --> 0:08:36.120 It is really hard to do. But I kept getting 0:08:36.160 --> 0:08:39.480 the same questions as I talked to startups around the world. 0:08:40.000 --> 0:08:42.319 I'm now which a C two ventures and where you've 0:08:42.360 --> 0:08:46.439 invested in sixteen startups globally and focus very much on 0:08:46.480 --> 0:08:49.440 how do you scale and grow companies? And I decided 0:08:49.480 --> 0:08:51.360 to write the book because I kept hearing these same 0:08:51.440 --> 0:08:54.400 questions from the startups. It didn't matter if you in Dubai, 0:08:55.000 --> 0:09:00.280 New Delhi, Silicon Valley, West Virginia. The startupe e O 0:09:00.480 --> 0:09:03.400 s had the same type of issues and challenges, which 0:09:03.400 --> 0:09:05.520 were how to scale their company, how do you grow, 0:09:05.600 --> 0:09:08.080 when do you decide to hire people, how you deal 0:09:08.120 --> 0:09:11.400 with your challenges and your setbacks. And I love teaching 0:09:11.520 --> 0:09:13.560 and that's what I love doing, perhaps most of all, 0:09:13.679 --> 0:09:18.040 is building teams. So the lessons is very simple. I 0:09:18.160 --> 0:09:20.200 like to share those. You're in a period where you grow, 0:09:20.320 --> 0:09:24.600 you die, you disrupt, you get disrupted, you catch business 0:09:24.600 --> 0:09:27.520 and technology trends at the same time. And Eric was 0:09:27.600 --> 0:09:32.080 a really good competitor, unfortunately, but we had probably five 0:09:32.200 --> 0:09:35.360 or six really tough, big competitors. Five or six companies 0:09:35.400 --> 0:09:38.240 are sized like Free Calm and Wealth Fleet in sent Optics, 0:09:38.679 --> 0:09:41.439 and then a whole bunch of startups. What allowed us 0:09:41.440 --> 0:09:44.800 to break away was acting like a startup all the way, 0:09:44.840 --> 0:09:47.640 going from four people when I joined Cisco to seventy 0:09:47.679 --> 0:09:51.680 five thousand and to be reinvent ourselves again and again, 0:09:51.800 --> 0:09:54.880 and to learn that setbacks, while you wish you could 0:09:54.880 --> 0:09:57.680 avoid them, actually make you stronger as you move forward. 0:09:58.120 --> 0:10:00.640 So sharing, that's what I'm after, And I've had the 0:10:00.760 --> 0:10:03.360 opportunity to be in the front row seat and sometimes 0:10:03.400 --> 0:10:05.559 in the middle of the playing field as I walk. 0:10:05.640 --> 0:10:08.280 These transitions occur in my home state of West Virginia, 0:10:08.720 --> 0:10:11.680 in Boston, which used to be the Silicon Valley of 0:10:11.720 --> 0:10:16.760 the world, as mainframe computers IBM, many computers think wang 0:10:16.800 --> 0:10:20.400 Deck data, general PC players now the Internet now moving 0:10:20.440 --> 0:10:23.959 to digitization. So I've seen the movie, I have the scars. 0:10:23.960 --> 0:10:26.120 I've done some things right and we have made some mistakes. 0:10:26.160 --> 0:10:28.360 And I've quired a hundred day companies, so i know 0:10:28.400 --> 0:10:31.080 what it's like the scale companies. So, John, given that 0:10:31.200 --> 0:10:34.480 vast experience, and given the fact that you're currently looking 0:10:34.640 --> 0:10:38.040 for startups that are worthy of your investment, how well 0:10:38.120 --> 0:10:42.160 positioned is the US in the fight for you know, 0:10:42.280 --> 0:10:45.679 future dominance, not only over technology but in general with 0:10:45.760 --> 0:10:49.320 its startup culture. Uh. At least I think you've asked 0:10:49.720 --> 0:10:52.120 the major takeaway. I hope people get from the book. 0:10:52.559 --> 0:10:55.679 We think of ourselves as the innovation nation. We are 0:10:55.720 --> 0:10:59.480 not and interesting us. The Bloomberg Index on Innovation doesn't 0:10:59.480 --> 0:11:02.160 have us in the top ten countries anymore. We think 0:11:02.160 --> 0:11:04.720 with the startup nation of the world. That was true 0:11:04.720 --> 0:11:07.040 in the nineties and two thousands, and we used to 0:11:07.080 --> 0:11:11.000 get a venture capital into our country and twenty years ago, 0:11:11.160 --> 0:11:14.720 then ten years ago, eighty. Today it's fifty. And if 0:11:14.760 --> 0:11:17.440 you watch, we're almost to the twenty year low in 0:11:17.559 --> 0:11:21.400 terms of startups I e H. Versus where we were 0:11:21.840 --> 0:11:24.600 UH two decades ago. The number of I p o 0:11:24.720 --> 0:11:27.040 s and you guys know this very well, Lisa is 0:11:27.679 --> 0:11:29.599 UH at a very low level compared to where it 0:11:29.640 --> 0:11:31.719 was in the nineties. Were excited about doing two and 0:11:31.840 --> 0:11:33.480 thirty I p o S in the New York Stock 0:11:33.559 --> 0:11:37.160 Exchange the NASDAQ this year, and it's up slightly from 0:11:37.160 --> 0:11:40.720 the high in one eighties last year. But we did 0:11:40.800 --> 0:11:44.080 four hundred to five hundred per year in the nineties. 0:11:44.520 --> 0:11:46.559 If you're going to generate twenty five to thirty million 0:11:46.640 --> 0:11:49.679 jobs over the next decade, and if you combine with 0:11:49.720 --> 0:11:53.520 that a requirement to generate another twenty million plus because digitization, 0:11:54.520 --> 0:11:58.480 automation artificial intelligence will destroy twenty to thirty million jobs, 0:11:58.720 --> 0:12:02.040 probably a third percent of our workforce if we don't 0:12:02.040 --> 0:12:05.400 get the startup engine going again and we're too complacent. 0:12:05.520 --> 0:12:06.880 One of the things I point out in the book 0:12:07.000 --> 0:12:09.640 is the worst thing you can do. The worst thing 0:12:09.720 --> 0:12:11.720 you can do is keep doing the right thing too long, 0:12:11.760 --> 0:12:14.760 and that's what gets companies into trouble. And countries like 0:12:14.840 --> 0:12:17.600 France that you view and Pam you would have viewed 0:12:17.920 --> 0:12:19.840 three or four years ago, is the worst place to 0:12:19.840 --> 0:12:22.640 do a startup. Have moved to the best place in Europe, 0:12:22.800 --> 0:12:25.480 going from a hundred and forty high tech startup venture 0:12:25.520 --> 0:12:29.800 backs per year to seven d and four years John, 0:12:29.840 --> 0:12:31.840 I just wonder if you could offer your thoughts about 0:12:31.880 --> 0:12:36.080 one of the various numbers of points that you make 0:12:36.280 --> 0:12:39.160 in the book about vision and strategy and so on. 0:12:39.480 --> 0:12:44.760 But I thought that one particularly geographic proximity to headquarters 0:12:44.880 --> 0:12:49.559 or key operational centers, that's like real information you can 0:12:49.679 --> 0:12:53.920 use it is Originally I thought at at Cisco, we 0:12:53.920 --> 0:12:55.920 were building the Internet and we were changing the ways 0:12:55.920 --> 0:12:58.440 the world works. Has learned some place, and I thought 0:12:58.480 --> 0:13:01.040 you could have a company that has people everywhere and 0:13:01.360 --> 0:13:04.719 function just as good as one that had everybody's headquarters. 0:13:04.760 --> 0:13:08.680 I was wrong. You've got to have economic centers where 0:13:08.679 --> 0:13:11.160 you can move your teams around as one product does 0:13:11.200 --> 0:13:13.839 better or another product does not, as you promote people 0:13:13.840 --> 0:13:18.160 from one function to another. And in this new startup world, Uh, 0:13:18.280 --> 0:13:20.440 if you watch what is happening, we're not just not 0:13:20.520 --> 0:13:22.960 doing the number of startups we should. In this country. 0:13:23.679 --> 0:13:27.920 It's almost all Northeast Coast, almost all Silicon Valley, and 0:13:27.960 --> 0:13:30.880 almost all Texas. We need to bring that across the 0:13:30.920 --> 0:13:34.560 heartland of America and down to the southeast. So my 0:13:34.679 --> 0:13:37.800 view is that we need to locate startups at these 0:13:37.880 --> 0:13:41.040 hubs with universities and pick one or two universities per 0:13:41.120 --> 0:13:44.079 state and make all fifty state startups because that's where 0:13:44.080 --> 0:13:46.520 the job creation is going to occur. The big companies 0:13:46.559 --> 0:13:49.280 in total will not add head count uh this next decade. 0:13:49.760 --> 0:13:51.960 John Chambers, thank you so much. Unfortunately we have to 0:13:52.000 --> 0:13:53.800 leave it there. We can talk with you all afternoon. 0:13:53.840 --> 0:13:56.880 We'd love to. John Chambers, former executive chairman and chief 0:13:56.960 --> 0:14:00.520 executive officer of Cisco, now is the founder CEO of 0:14:00.640 --> 0:14:03.719 j C two Ventures in Palo Alto, California, and the 0:14:03.720 --> 0:14:06.040 author of a new book connecting the dots lessons for 0:14:06.120 --> 0:14:20.840 leadership in a startup world. Indeed, Tesla's founder and charismatic 0:14:20.920 --> 0:14:24.160 chief executive, Elon Musk, was slapped with a lawsuit from 0:14:24.160 --> 0:14:27.680 the SEC saying that he was engaged in securities manipulation 0:14:27.760 --> 0:14:32.000 with his for twenty dollars a share tweet. He said 0:14:32.040 --> 0:14:35.400 that funding was secured to go private, it was not. 0:14:35.520 --> 0:14:37.880 Joining us now, John Wilson had a research and corporate 0:14:37.880 --> 0:14:40.880 governance at Quarterstone Capital Group in New York. Joining us 0:14:40.880 --> 0:14:43.960 here in studios, John, I'd love to get your perspective 0:14:44.000 --> 0:14:48.040 in terms of the corporate governance aspect of this, in 0:14:48.200 --> 0:14:51.960 terms of what the board should have done and what 0:14:52.120 --> 0:14:56.120 the liability is of having one charismatic leader who is 0:14:56.160 --> 0:14:59.400 somewhat unhinged. Well, that's a great that's a great couple 0:14:59.400 --> 0:15:01.880 of questions, and I think they'll take the second one first. Right, 0:15:01.960 --> 0:15:05.320 this is a company that you when you invest in 0:15:05.360 --> 0:15:08.320 this company, you are investing in one person, really, right, 0:15:08.360 --> 0:15:10.640 because this is a company. It's a car company, but 0:15:10.640 --> 0:15:13.120 it has trouble making cars sometimes. Right, it's deep in 0:15:13.160 --> 0:15:17.080 debt um. It's signature product, the electric car is less 0:15:17.120 --> 0:15:20.479 and less a novelty every day, Right, as other manufacturers 0:15:20.480 --> 0:15:23.240 are coming up with their own lines, and so what 0:15:23.360 --> 0:15:25.440 are we investing. We're investing in the charism of this 0:15:25.560 --> 0:15:27.920 one individual and the fact that he's such a fan 0:15:28.040 --> 0:15:30.840 following all over the world. People want these cars in 0:15:30.920 --> 0:15:34.320 part because of his persona, and as it starts to flag, 0:15:34.480 --> 0:15:36.520 then you have to ask yourself, Okay, I need to 0:15:36.520 --> 0:15:38.520 take a step back, ask the question is what am 0:15:38.520 --> 0:15:41.640 I investing in? Is this a company that can grow beyond? 0:15:41.760 --> 0:15:44.440 And this is what your your point about the founder's syndrome, 0:15:44.560 --> 0:15:47.480 essentially is can we grow beyond this one individual to 0:15:47.680 --> 0:15:52.640 create a sustainable going concern that can actually sustain itself 0:15:52.680 --> 0:15:54.960 over the long term. At this point, especially given their 0:15:55.040 --> 0:15:57.480 management troubles, seems hard to imagine how they're going to 0:15:57.560 --> 0:16:00.920 do that. Now, you've written obviously not just about Tesla, 0:16:01.000 --> 0:16:04.360 but a variety of companies, and you also speak about 0:16:04.400 --> 0:16:08.360 how companies are not nimble enough when it comes to 0:16:08.400 --> 0:16:11.200 these issues. Could you just explain that, well, UM, a 0:16:11.240 --> 0:16:14.400 lot of companies have blind spots right about a lot 0:16:14.480 --> 0:16:17.480 of different cultural and social issues that they're facing. Right. 0:16:17.480 --> 0:16:20.360 This is something that we look at when leaders UM 0:16:21.240 --> 0:16:23.960 are not in touch with what there are other stakeholders 0:16:23.960 --> 0:16:27.400 are talking about this can become a huge problem for companies. 0:16:27.440 --> 0:16:29.720 And one issue I think that pr on people's minds 0:16:29.800 --> 0:16:32.320 right now is the question of sexual and gender based violence. 0:16:32.440 --> 0:16:34.320 Right It's not quite the same thing as what TESLA 0:16:34.360 --> 0:16:37.160 is facing at the moment, but it's another cultural issue 0:16:37.160 --> 0:16:39.760 and an issue of leadership. I think, going back a 0:16:39.840 --> 0:16:42.720 year or so, if you had asked folks, are you 0:16:42.800 --> 0:16:44.960 for or against sexual harassment? I think you would have 0:16:45.000 --> 0:16:46.920 pretty much found everyone to say they were against it. 0:16:47.520 --> 0:16:51.440 And yet, and yet, so many of these companies UM 0:16:51.960 --> 0:16:56.760 found themselves facing allegations, credible allegations of cultures of sexual 0:16:56.800 --> 0:17:00.720 harass but not just individual incidents, but whole ultures of 0:17:00.760 --> 0:17:04.520 sexual harassment UM and really being surprised by this. And 0:17:04.560 --> 0:17:06.520 that was what I talked about, by not being nimble, 0:17:06.640 --> 0:17:09.800 not being aware of what's going on in your company 0:17:09.920 --> 0:17:13.200 or with its customers, its employees, its suppliers, and it 0:17:13.359 --> 0:17:16.280 prevents you from acting and it leads to surprises when 0:17:16.320 --> 0:17:18.240 you hear things in the news. All right, So you 0:17:18.240 --> 0:17:20.160 know you raised sort of a question. Not to conflate 0:17:20.240 --> 0:17:24.480 sexual harassment with securities manipulation, charges that the sec is 0:17:24.480 --> 0:17:27.639 is going after Elon Musk. For there is though a 0:17:27.760 --> 0:17:31.480 question about the board here with Tesla as well as 0:17:31.600 --> 0:17:34.280 as you said, in terms of what their role ought 0:17:34.359 --> 0:17:37.399 to be in setting a culture that is conducive to 0:17:37.440 --> 0:17:39.640 a lot of different points of view. And so I'm 0:17:39.640 --> 0:17:42.640 wondering if you could just speak about Tesla, I mean, 0:17:43.080 --> 0:17:46.320 where is the responsibility for their board? Well, here's the problem. 0:17:46.359 --> 0:17:48.400 So this is this is an issue that we sometimes 0:17:48.400 --> 0:17:51.119 talk about, which is that corporate governance doesn't matter until 0:17:51.160 --> 0:17:53.840 it does right. In other words, what I'm saying is 0:17:53.920 --> 0:17:55.960 that people have known for a long time the Tesla's 0:17:55.960 --> 0:17:58.199 board is a problem that many of the people on 0:17:58.320 --> 0:18:02.760 Tesla's board on have real close relationships to to Elon Musk. 0:18:02.840 --> 0:18:04.640 There there are members of the board who are part 0:18:04.680 --> 0:18:08.000 of Solar City, which then they purchased, which he also 0:18:08.040 --> 0:18:10.840 owned um And what we're finding out also right now 0:18:10.960 --> 0:18:13.560 is that there is no one with CEO level leadership 0:18:13.640 --> 0:18:15.600 skills on the board who could take over if see, 0:18:15.680 --> 0:18:17.840 if he leaves. So these are all issues that we 0:18:17.920 --> 0:18:21.560 knew about, but Tesla stock continued to rise because of 0:18:21.560 --> 0:18:25.000 of Elon Musk. Suddenly he's a problem, and we're looking 0:18:25.040 --> 0:18:27.720 to the board and recognizing its inability to deal with 0:18:27.760 --> 0:18:29.879 the crisis. Alright, So you deal with a lot of boards, 0:18:29.920 --> 0:18:32.199 and you deal with a lot of companies. Do you 0:18:32.280 --> 0:18:34.480 feel like there is a critical mass of boards that 0:18:34.560 --> 0:18:39.359 recognize their role in setting up culture and can you 0:18:39.359 --> 0:18:41.840 give us a sense of what it takes for them 0:18:41.840 --> 0:18:43.720 to play an active role in that. So I think 0:18:43.760 --> 0:18:46.000 that there are I don't want to I think that 0:18:46.080 --> 0:18:49.160 what we were seeing here is a is a problem 0:18:49.280 --> 0:18:51.399 of some boards, and I think there are other boards 0:18:51.440 --> 0:18:53.960 that are really trying to figure out, you know, what 0:18:54.119 --> 0:18:56.040 the right way to go is. But we're dealing with 0:18:56.400 --> 0:18:58.320 new sets of issues all the time. There is a 0:18:58.440 --> 0:19:01.840 much greater awareness of the kinds of cultural issues that 0:19:01.880 --> 0:19:04.520 are going on all through you know, different companies, right, 0:19:04.520 --> 0:19:07.520 not just Tesla, but you know, relating to sexual and 0:19:07.560 --> 0:19:11.080 gender based violence, relating to racial equality, inequality of you know, 0:19:11.240 --> 0:19:14.719 um of income and so forth. And and the problem 0:19:14.720 --> 0:19:17.040 what boards need to do is they need to start 0:19:17.080 --> 0:19:20.720 to make themselves more aware of what their employees, their 0:19:20.960 --> 0:19:24.720 their suppliers, their customers are thinking about them. I think 0:19:24.720 --> 0:19:27.800 there's too much in celerity on boards. There's there's not 0:19:28.000 --> 0:19:31.359 enough turnover on board. This is one governance issue that 0:19:31.359 --> 0:19:34.520 we talk about a lot is that Here's an interesting fact. 0:19:34.680 --> 0:19:38.200 Most of the majority of board members coming onto boards 0:19:38.240 --> 0:19:41.480 these days are members women are members of minority groups. However, 0:19:41.960 --> 0:19:45.480 board turnover is so low that the number of women total, 0:19:45.520 --> 0:19:48.679 the total women and minorities, is still less than thirty percent. 0:19:48.840 --> 0:19:52.040 And so the problem is entrenched board members, a culture 0:19:52.040 --> 0:19:55.400 where boards are recycling themselves and you need new blood 0:19:55.640 --> 0:19:58.640 in order to understand what the issues that are emerging 0:19:58.960 --> 0:20:02.240 for companies are. We're speaking with John Wilson. He is 0:20:02.240 --> 0:20:06.480 the head of research and corporate Governance at Cornerstone Capital Group. John, 0:20:06.600 --> 0:20:10.080 is there any connection in your mind between the performance 0:20:10.560 --> 0:20:14.199 of a corporate culture and the performance of a stock 0:20:14.960 --> 0:20:19.560 In other words, can you make decent investment decisions? Perhaps 0:20:19.560 --> 0:20:23.919 starting with the corporate governance issue? What I would say is, 0:20:23.920 --> 0:20:25.880 and one of the reasons why this is a challenge 0:20:25.880 --> 0:20:30.320 for investors is that cultural issues tend to be longer term. 0:20:30.440 --> 0:20:32.639 As I said before, they tend to not matter until 0:20:32.680 --> 0:20:34.800 they do. And uh, you know, the example of Nike 0:20:34.880 --> 0:20:37.040 is a great one where they lost a lot of 0:20:37.119 --> 0:20:40.320 talent all of a sudden because of issues of sexual 0:20:40.320 --> 0:20:42.959 harassment in the company. And so if I, if I 0:20:43.000 --> 0:20:46.760 was an investor UM looking at a long term investment 0:20:46.760 --> 0:20:49.800 in a company, UM, I would definitely take corporate governance 0:20:49.840 --> 0:20:53.000 into account. Now that may, you know, not affect my 0:20:53.160 --> 0:20:56.520 short term decisions about market sentiment and and so forth, 0:20:56.560 --> 0:20:59.800 but if I'm not aware of the cultural and governance issues, 0:21:00.200 --> 0:21:03.800 then I'm opening myself up to risk over the long term, 0:21:03.880 --> 0:21:06.199 you know. Just real quick here, I'm struck by what 0:21:06.359 --> 0:21:09.680 someone once told me that you have one charismatic leader 0:21:09.720 --> 0:21:12.600 who the whole company hinges on, that company is more 0:21:12.640 --> 0:21:17.639 likely to experience fraud. Just real quick. Has that been 0:21:17.680 --> 0:21:20.920 your experience as well? UM? Yes, I think that's right, 0:21:21.119 --> 0:21:23.399 because if you have, if you are all about that 0:21:23.480 --> 0:21:27.359 one person, then other people tend to operate first of 0:21:27.359 --> 0:21:32.119 all without being um without accountability, right without transparency, and 0:21:32.200 --> 0:21:35.919 so they sort of get the mindset of impunity, if 0:21:35.960 --> 0:21:38.480 you will. And I think that can happen both for 0:21:38.640 --> 0:21:41.440 other executives at the company and for the charismatic founder 0:21:41.600 --> 0:21:44.040 who may sort of begin to see themselves as invulnerable, 0:21:44.080 --> 0:21:46.720 and so that can happen. Thanks very much for being 0:21:46.720 --> 0:21:50.320 with us. John Wilson, head of Research and corporate Governance 0:21:50.440 --> 0:21:56.440 at Cornerstone Capital Group, talking about the connection between corporate governance, investments, 0:21:56.800 --> 0:22:10.520 and corporate performance. We are broadcasting live from the Bloomberg 0:22:10.520 --> 0:22:14.160 Interactive at Broker's studio is getting close to lunchtime in 0:22:14.200 --> 0:22:17.000 New York, so we want to talk about food, UH 0:22:17.000 --> 0:22:19.240 and PAYM. We're very lucky we're joined by the co 0:22:19.400 --> 0:22:24.159 founders of AXL Foods, which is a quickly growing venture 0:22:24.240 --> 0:22:28.200 capital firm. Looking at what we're going to be snacking 0:22:28.200 --> 0:22:30.240 on next, it will actually be good for us. We have, 0:22:30.480 --> 0:22:33.800 luckily Lauren Jupiter and Jordan's gas Bar here in our 0:22:33.800 --> 0:22:36.359 eleven three oh studios. So Lauren, I want to start 0:22:36.359 --> 0:22:39.560 with you, what is AXL Foods? Uh? First of all 0:22:39.600 --> 0:22:42.840 things for for having us, We are a venture capital 0:22:42.880 --> 0:22:45.760