In the aspects of contemporary business, the notion of Corporate Social Responsibility (CSR) has gained adequate profit and it has been compelling corporations to assess their influence not only on the economics. However, it has also been promoted in the social and environmental aspects of society. The aspects of CSR have been helping companies in different laws and for that companies are taking vital components of the society in which they operate. Therefore, in different countries, companies have an inherent obligation to make good contributions to that community. This notion has been becoming more significant in light of global concerns such as the COVID-19 epidemic.
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Tesla Inc under the leadership of CEO Elon Musk in the challenging times of 2020 has provided an adequate example to analyse the complexities and consequences of corporate social responsibility (CSR) and ethical leadership. Furthermore, Tesla has exceeded market expectations successfully joined the S&P 500 and has encountered substantial ethical and governance obstacles. These issues have been particularly promoted in its response to the COVID-19 epidemic and the restrictions set by the government of the UK to control its complexities. This report has been promoting an opportunity to examine the various aspects of business ethics, the duties of leadership and the wider impact on stakeholder trust and corporate reputation.
Critical analysis of Tesla’s behaviour during lockdown. How does this relate to good corporate governance practice?
The automotive industry has experienced inadequate disruptions due to the COVID-19 pandemic and it has been resulting in a substantial impact on consumer demand for vehicles (Eldem, Kluczek and Bagi?ski, 2022). Vehicle demand in certain regions of the United States has experienced a significant decline and it has reached as low as 80% in March. Furthermore, Tesla as compared to other automobile manufacturers has also been compelled to quickly adjust to these shifting market dynamics. The company's choice to eradicate employees and close factories and economically justifiable and has generated substantial apprehensions regarding employee well-being (Obrenovic et al., 2021). This decision has been highlighting the need for companies to carefully manage their financial stability and social obligations in times of crisis. During the pandemic, Tesla's strategic response has stated the company's ability to withstand and adjust to challenges (Anderson et al., 2022). The incremental increase in production at the Fremont and Shanghai factories has been facing deliberate strategy mainly considering the uncertainties caused by the pandemic. The progress made at Tesla's Shanghai in china facility has been particularly remarkable.
In terms of this, the facility not only adapted swiftly however, also anticipated an adequate rise in the production rates of its Model 3 sedan. This resilience has not been demonstrated in Tesla's ability to adapt quickly and effectively, but also it can sustain a competitive advantage in a global market. The financial results of Tesla in the first quarter, specifically the significant increase in automotive gross margins to 25.5%, highlight the company's operational effectiveness and capacity to maintain profitability (Hoze, 2021). Nevertheless, a crucial component of Tesla's income flow was the significant contribution derived from regulatory credits, which accounted for approximately 7% of its automotive revenue. The extensive dependence on these credits which are susceptible to external regulatory frameworks and it has beem prompting concerns regarding the measuring viability of Tesla's financial structure (Biswas and Wang, 2023). This interdependence has been highlighting a possible weakness in Tesla's otherwise strong financial standing. Tesla's reaction to the COVID-19 pandemic highlights various ethical and corporate social responsibility (CSR) factors (Marom and Lussier, 2020). The decision to furlough workers for example, it raises ethical concerns regarding the company's dedication to its employees amidst a crisis. Moreover, Tesla has been depending on the regulatory credits in line with its objective to advance environmental sustainability and it is a crucial component of corporate social responsibility (CSR) (Gilchrist, Yu and Zhong, 2021).
It is to be stated that stakeholders such as shareholders, employees, customers, suppliers, financiers, the community, and the government are also required to promote the good governance of the company. The role of governance in Tesla's efficient management and control is complex and has multiple aspects.
Furthermore, governance at Tesla has been included the establishment of a strategic direction and the provision related to company management (Naor, 2022). This promotes establishing strategic objectives that are related with the organization's mission of promoting sustainable energy and transportation, and ensuring that these objectives are effectively pursued. The governance framework has been represented by the Board of Directors has a crucial function in developing and overseeing the execution of these strategic goals.
The aspects related to Tesla's actions during the COVID-19 lockdown in 2020 has been promoting a scenario involving corporate resistance and ethical decision-making under the guidance of CEO Elon Musk (Neal, 2023). However, Tesla has experienced a considerable financial prosperity with substantial pre-COVID profits and inclusion in the S&P 500 and the company's handling of the pandemic has been providing rise to significant ethical apprehensions. The company's inaugural has been adding challenge lockdown orders by resuming operations at its Fremont factory and it was subsequently halted by Alameda County officials (Lyons, 2020). Musk's public denunciation of the lockdown measures which the CEO labelled as "fascist," and it has been focusing in light of the increasing number of deaths introduced a contentious aspect to Tesla's position.
Tesla's approaches related legal recourse against the lockdown is based on discrepancies surrounding its classification and it is essential for business and it has further underscored the conflict between government-imposed public health measures and corporate interests (Wong, 2020). The decision is to resume vehicle production without official authorization displayed a daring, if not rebellious and attitude towards regulatory adherence. Alameda County officials are needed to approve the reopening plan after the action was taken.
The relaxed enforcement of mask-wearing and subsequent outbreak of COVID-19 cases among workers at the reopened factory have been enhanced concerns about Tesla's dedication to ensuring employee safety and public health (Koen Byttebier, 2022). Musk's contradictory communication has been creating issues to workers that they had the option to stay home if they felt unsafe, sharply contradicted the subsequent termination of some employees who exercised that choice. This action is highly controversial from an ethical standpoint as it contrasts Musk's significant involvement in addressing climate change with what appears to be a casual disregard for the well-being of employees and public health during a worldwide pandemic. The company’ situation has been adding the difficulties and aspects that arise in corporate leadership during crisis management and it has also been including the juggling the priorities of public safety, employee well-being, and the uninterrupted operation of the business.
Tesla's conduct during the COVID-19 lockdown is related to the regulations enforced by California that has been presenting an adequate example for assessing corporate governance practises (Kolodny, 2020). It stated the Tesla's actions and determines their conformity with the principles of sound corporate governance.
CEO Elon Musk has tried to get work to start up again at its Fremont factory even though the state has ordered a lockdown. Musk's reactions to the restrictions which he called "fascist,". This decision has been made to sue Alameda County to get Tesla out of the lockdown show how business interests and public health rules are at odds with each other (Gryshkova, 2021). Disobeying authority states the moral questions especially in light of the current global health emergency.
Employees, shareholders, customers, and the community as a whole all have different interests that need to be carefully managed in order for corporate governance to work well. It also needs things that are in line with moral and legal standards. Tesla's decision to start making things again without official permission could be seen as putting more value on keeping the business running smoothly and protecting the interests of shareholders than on protecting workers' safety and the public's health (Sudhakaran and Uygun, 2020). This has been giving aspects regarding the company's dedication to ethical governance and social responsibility.
Tesla's actions have demonstrated a governance approach characterised by the CEO's significant influence on key decisions potentially prioritising their perspective over the interests of other stakeholders (Mahmood, 2023). The governance framework has been serving the purpose of establishing checks and balances to ensure that strategic decisions are made in the best interests of all stakeholders and it includes the community and employees.
The factory's safety conditions, characterised is insufficient in terms of COVID-19 precautions and it has been highlighting a possible disregard for the well-being of employees (Cohen and van der Meulen Rodgers, 2020). Although CEO has provided workers with the choice to remain at home if they felt unsafe. The subsequent dismissal of those who has exercised this option contradicts the principles of ethical treatment and transparency.
Therefore, it is observed that companies such as Tesla that have substantial expansion and market projections, prioritise business continuity. Furthermore, it is crucial that this goal does not overshadow the commitment to legal and ethical principles (Varkey, 2021). Responsible governance involves making decisions that related to both legal requirements and social responsibilities and it is related to the times of crises.
Critical evaluation of Tesla’s corporate governance structure, including internal control, internal audit and risk management, and the role and composition of its board
Corporate governance structure
The Board of Directors of Tesla, Inc. establishes rigorous benchmarks for the Company's workers, executives, and directors (Blanc, Chenaux and Philippin, 2022). The significance of strong corporate governance is inherent in this ideology. The Board of Directors has the responsibility to act as a cautious fiduciary for shareholders and to supervise the management of the Company's operations. The Board of Directors adheres to the procedures and standards outlined in these guidelines in order to fulfil its responsibilities and carry out its duty (Tesla, 2020). The Board of Directors may modify these guidelines as necessary for the Company's best interests or to comply with applicable laws and regulations. Hence, it has been noted that the company board of directors has the responsibility to execute the task effectively and effectively carry out the business operation in the business market territory.
Figure 1: Corporate governor structure of Tesla
The Nominating and Corporate Governance Committee of Tesla evaluates and advises the Board on the structure and number of Board members. It establishes the necessary criteria, including any minimum qualifications, and proposes a list of candidates for election at the Annual Meeting of Stockholders or to fill temporary vacancies on the Board (Tesla.com, 2023). The primary duty of the Board is to utilise their business acumen to make decisions that they fairly perceive to be in the utmost benefit of Tesla and its shareholders. The Board has the responsibility to supervise management's performance in order to guarantee that Tesla works effectively, efficiently, and ethically (Tesla.com, 2023). In addition, the Board is responsible for overseeing risk, and relevant board committees perform reviews of specific areas. The Compensation Committee will regularly assess the performance of the chief executive officer and other executive officers. They will also examine and authorise the compensation plans, policies, and agreements for these executives (Tesla.com, 2023). The evaluation will also assess the adequacy, competitiveness, and alignment with Tesla's aims and performance of the pay plans, policies, and programmes for executives and workers.
Internal audit
Exercising complete authority over the selection, remuneration, and supervision including resolving conflicts between leadership and the outside auditors regarding reporting requirements and establishing internal controls over financial reporting and replacement of the independent auditors responsible for preparing or issuing an audit report or related work to measure the business operation effectively. The Tesla Audit Committee is involved in the selection procedure of the internal auditor. The committee verifies that the internal auditor holds the requisite credentials, autonomy, and proficiency to conduct efficient and impartial internal audits. This entails that the Audit Committee is responsible for choosing either an internal audit team or an external firm that can impartially evaluate the financial regulation risk management procedures and general governance of Tesla within the framework of its business operations.
Risk management
The most suitable risk approach for Tesla's board of directors to adopt is mitigation (Ahmed, 2017). The board's inaugural report on environmental and social responsibility (ESR) in 2019 provides compelling proof of their effective efforts in tackling these concerns. However, more measures can be taken to further reduce corporate social responsibility (CSR) risks, and various recommendations are offered. Tesla's board of directors should contemplate establishing a “Corporate Social Responsibility and Sustainability” committee indicates that corporations that do so tend to achieve superior performance in this domain. Although the board has recently made notable progress in diversification, it might enhance its effectiveness by selecting independent directors who possess expertise and a history in risk management and corporate social responsibility and sustainability (CSR&S). The Tesla Company has been investing in cobalt mining companies in the Democratic Republic of Congo (DRC) and exerts influence over company activities by assuring alignment with Tesla's purpose and sustainability strategy (Posner, 2020). Integrating ESR reporting into annual financial reports has demonstrated greater efficacy in showcasing a company's endeavours in corporate social responsibility and sustainability. Tesla might enhance its public perception by adopting this fundamental change in financial reporting.
Corporate Social Responsibility
ESG has attracted significant attention from a wide range of stakeholders, including creditors, shareholders, regulators, boards of members, communities that are impacted, consumers people in general, consultants, and academics. ESG is a component of the previously established concept of corporate social responsibility (CSR) (Newman et al., 2020). CSR pertains to the qualitative responsibility of corporations to be accountable for the social consequences of their business decisions and actions. On the other hand, ESG primarily focuses on developing methods to quantify and assess these particular activities and consequences (Pattarake Sarajoti et al., 2022). The dilemma is in the lack of clarity regarding the specific details to include, the criteria for measuring a company's performance, the consequences of these risk issues, the actions being taken to reduce them, and the effectiveness of reporting the ratings to relevant stakeholders.
Figure 2: Tesla Addressing Climate Change
The global climate crisis has escalated to worrying proportions worldwide mostly as a result of the emissions produced from the combustion of fossil fuels for transportation and the generation of power. It has been imperative to tackle both the production and use of energy on a global scale in order to decrease greenhouse gas (GHG) emissions (Ali, Ahmad and Yusup, 2020). The globe must first focus on directly decreasing emissions in the transportation and energy sectors in order to address its energy habits. Tesla has been developing and producing a comprehensive energy and transportation system (Tesla.com, 2021). In addition, Tesla has been actively advancing the technology that underlies this ecosystem and prioritizing the affordability of the items that have been part of it. Tesla aims to accomplish this by investing in research and development, software development and by continuously improving their advanced manufacturing skills.
Critical analysis of Tesla’s ethical perspective and the mechanisms in place to avoid unethical behaviour
Employees are the most invaluable resource of Tesla. Tesla is dedicated to ensuring that salaries, benefits, and other employment terms are fair and equitable, always in accordance with the laws of the countries in which the firm operates (Lobo, 2020). The company ensures accurate payment for hourly employees, including overtime, and holds managers responsible for accurately recording their time. Tesla strictly prohibits the use of forced labour or employment of underage workers at all of its facilities. In addition, the company has always adhered to all work authorization regulations in the countries where it is located.
Tesla employee is entitled to securely return to their family each day. Tesla is dedicated to protecting this right and will not sacrifice it for the sake of manufacturing or financial gain (Flanigan and Freiman, 2022).
Tesla's objective is to minimise injuries to the greatest extent feasible. All people that have been involved in the working environments including employees and visitors have been required to adhere to all safety and health regulations when accessing our premises. Employees are required to arrive at work and carry out their assigned duties without being intoxicated by illicit substances or alcohol.
Tesla have a wealth of knowledge and insights to impart to the global community. Timing is crucial for this task. Unauthorized dissemination of confidential information significantly impairs Tesla's competitive capacity and defeats the mission. Tesla employees have been subjected to an unethical work environment to ensure optimal task performance. Employees has been required to obtain approval from their immediate supervisor and establish a non-disclosure agreement (NDA) with any external parties before sharing sensitive information (Patat, Sabt and Fouque, 2022). Tesla strongly prioritizes the non-disclosure of confidential information, even while collaborating with business partners, unless it is absolutely essential. Tesla gathers, generates, and retains a diverse range of exclusive information. The data in question encompasses highly confidential material such as proprietary knowledge, source code, firmware, strategic information, undisclosed financial data, and product blueprints. Additional confidential data, although it may appear less critical, must also be kept private as it plays a role in Tesla's commercial achievements.
Tesla has received the highest rating for its Conflict Minerals Policy and Practise and it is a member of the Responsible Mineral Initiative. However, as per The Guardian it is identified that Tesla is named as a defendant in a lawsuit initiated by a human rights firm on behalf of 14 parents and children from the Democratic Republic of the Congo (DRC) (Kelly, 2019). According to the article, the economist Siddharth Kara who opposes slavery, accused Tesla, as well as other companies such as Apple and Google, of actively supporting and encouraging the occurrence of fatalities and injuries among children working in cobalt mines within their supply chain. Therefore, tesla need to focus on the perspectives related to the child labour and other gender equality in terms of promoting brand value of the company. In terms of CSR value of the company, it is identities that the company need to focus on the climate change perspectives also in order to reduce the environmental degradation.
In January 2022, it faced criticism from US lawmakers for its expansion into the Uyghur Region, despite compelling evidence of the Chinese government's operation of mass internment camps in that area. Tesla ranked poorly in the 2020 Corporate Human Rights Benchmark (CHRB) report, which evaluates the human rights and environmental practises of 229 of the largest global companies (Sarfaty and Deberdt, 2023). Tesla achieved a score within the lowest 10% range on the benchmark. Tesla performed inadequately in the remaining aspects of our evaluations pertaining to human and workers' rights notably receiving the lowest rating in Supply Chain Management.
Conclusion
It can be concluded that, Tesla has been facing different kinds of challenges which has created issues such as good government and brand reputation in the market. The Board of Directors of Tesla has been playing a crucial role in establishing elevated benchmarks for the company's staff, executives, and directors. The primary responsibility of this Board is to serve as a diligent fiduciary for shareholders and supervise the company's business operations. The Board's has been established guidelines and its ability to adapt to change are crucial for ensuring Tesla's compliance with laws and regulations as well as for effectively implementing its business strategy. The Tesla Audit Committee has a crucial responsibility in supervising internal controls regarding financial reporting and resolving conflicts that can occur between management and auditors. The Committee's role in choosing competent internal auditors guarantees an unbiased assessment of Tesla's financial regulations, risk management protocols, and overall governance.
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