Dr John Sullivan Talent Management Thought Leadership

In a business world where everyone takes sides, corporations must now come across as apolitical. 

Article Descriptors| Elon Musk/Appearing Political – Problems With His Relocation Decision – 4 Min Read

Why Musk’s Relocation Decision Qualifies As A “Bonehead Move”

The recent decision by Elon Musk to move the headquarters of  SpaceX and X to Texas because of a new transgender parents notification law in California could have at least 9 damaging short- and long-term consequences for employees and shareholders. The lessons that you need to learn from this move include:

• Political and lifestyle concerns will cause his companies to lose many current employees – It’s a fact that many of the key headquarters staff won’t be willing to make the move. Some will stay because of family ties in California. However, others will likely suffer real estate losses. First, the move may cause them to lose their current low-interest-rate mortgage. Additionally, they will be forced to enter the extremely tight housing market in Austin, Texas. Those employees who care about transgender issues will be reluctant to move away from liberal California. Furthermore, many employees will be hesitant because they have already made a conscious decision to live and work in liberal California. Their concerns about how Texas addresses reproductive rights, LGBT rights, voting rights, and environmental protections will lead many employees to search for new jobs before deciding to relocate.
• Concern over future job opportunities will also cause him to lose current employees – Musk’s well-known propensity for drastically cutting staffing levels without warning will continue to make other current employees feel insecure. Additionally, because California is a hot area for AI development, some employees will feel they won’t have the same excellent future job opportunities in Texas. Leaving may also mean the loss of future opportunities at powerhouse California corporations like Apple, Google, Nvidia, and OpenAI. Finally, because of Musk’s resistance to remote work (he somehow considers it “morally wrong”), current employees who don’t want to move won’t be able to keep their current jobs and work remotely from California.
• Having an arbitrary CEO will hurt recruiting, retention, and the stock price – In a world where power corrupts, and absolute power corrupts absolutely, everyone needs to question the future of Musk-controlled enterprises where it appears that Musk can make major strategic decisions unchecked, without the normal guardrails provided by the Board, other senior executives, and shareholders. Musk’s exercise of power is a problem because employees, customers, potential candidates, and shareholders all like stability. When a CEO appears to make sudden major decisions out of the blue, without consultation with those affected, members of each of these impacted groups are likely to question how long they can endure working in that arbitrary environment.
• His companies will lose revenue after taking a public stand on social issues – We know from the severe negative business consequences that hit Budweiser, Disney, and Target (Target alone lost $10 billion) when those corporations recently suffered boycotts because of their stands on sensitive social issues. Corporate leaders need to learn that when you have a divided customer base, these controversial social decisions can hurt your brand image and sales. In this case, socially liberal customers may stop buying as many environmentally friendly Tesla cars. They may also cut back on their use of the X platform. In the long term, SpaceX may even suffer a funding loss in Congress.
• Productivity and innovation will decrease when employees start talking about politics – Many employees might consider their CEO’s entrance into politics as a signal that it’s okay for them to exchange their political views on the job. Those conversations between employees will take up time and reduce productivity. Unfortunately, those exchanges may also create discord among employees. This is a serious problem because discord between employees will reduce collaboration, a primary driver of innovation.
• Recruiting tech talent will be more difficult in Texas – From a recruiting perspective, the same talent-related reasons that originally caused SpaceX and Twitter to have headquarters in California are still valid today. California’s extremely high talent density makes it a prime recruiting ground (California “is where the talent is”). In direct contrast, Texas is more of a blue-collar talent market. So, potential executives and tech talent will be less impressed by Texas’s attraction factors of no income tax and a lower cost of living. Incidentally, for a potential recruit, the lower cost of living in Texas also means that the salaries of recruits in Texas will be, on average, 25% lower than those in California. Musk is also a strong proponent of “coming to the office,” so his companies won’t be able to attract many candidates that prefer remote work jobs. Finally, because California is the most diverse state in the nation, the move may slightly impact the recruiting of diverse professionals.
• Unfortunately, this move may increase the impact of employee sentiment – when a CEO openly expresses their viewpoint or sentiment towards a social or political issue. That may also cause a portion of the employee population to consider and solidify their sentiment on that issue. In the past, these increased sentiment levels have caused employees to look for ways to express their sentiments openly to the point where they begin to influence corporate decision-making. The results have been highly disruptive. At Alphabet/Google, the employee desire to express their sentiment actually led to its employees challenging some of Google’s business decisions. Eventually, the creation of a “workers union” wouldn’t be welcomed by Musk, who believes that “unions create an adversarial relationship.”
• Operations and productivity may be impacted by Texas’s weak infrastructure – because of its low taxes. Government agencies in Texas have 60% less revenue (compared to California) to invest in infrastructure. Without sufficient infrastructure, companies in Texas will be forced to suffer through many heat waves, hurricanes, floods, tornadoes, and power outages. Many of them will be significant enough to disrupt operations.
• Finally, this relocation decision will have a low ROI – The relocation alone will be highly disruptive to operations at these two companies, especially when most of Musk’s companies are in cost-cutting mode. The added expense of jettisoning California property and acquiring the equivalent in Texas will significantly impact their bottom line. I estimate that the cost of the physical move, coupled with employee relocation expenses, may reach as high as 100 million dollars. Unfortunately, besides a lower cost of living and property prices, the move doesn’t appear to provide many direct business benefits. Shareholders can expect a low ROI from this decision.

Elon Musk needs guardrails

Of course, Elon Musk has not only ignored this apolitical advice but has also gone in the opposite direction. First, he had to know that his public endorsement and visible financial support for one presidential candidate would have business implications. But he also had to be aware that his follow-up relocation action would also have additional impacts on those who care about transgender issues. Even though his wealth and influence have allowed him to make these mostly political decisions, in my view, that doesn’t justify making the strategic decisions without thoroughly considering the negative impacts that these decisions will have on others, including employees, potential candidates, investors, strategic partners, and retail customers. Whether he knows it or not, Elon Musk would benefit greatly from more guardrails and a dramatic increase in collaboration.

Just because you can doesn’t mean that you should…

Final Thoughts

By now, all CEOs should be aware of the multiple negative economic impacts that Budweiser, Disney, and Target recently suffered due to getting visibly involved in social or political issues. They must further realize that in this current environment, it is becoming essential for corporations to ensure that they come across publicly as completely apolitical proactively. As this concern progresses, don’t be surprised when formerly “safe” social areas like DEI will soon be considered by some to be “political.”

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