According to Stringham, Miller & Clark (2015), Tesla is an ideal model for overcoming market entry barriers. This is through taking several revolutionary steps that made it reach its current position among the car giants with a long history, outperforming them all in market value, which in October 2021 reached a trillion dollars (Kane, 2022), which represents the sum of the market value of all the car companies in the world.
In this paper, I will discuss how this was done, what theory is appropriate to apply to Tesla's case, whether the model of governance is Agency or Stewardship, and the advantages and disadvantages of each theory.
Tesla and Overcoming Obstacles:
Tesla Corporation specializes in the automotive industry and lithium battery technology. It was founded by Martin Eberhard and Mark Tarpening and joined by Ian Wright, and then Elon Musk contributed $6.5 million. It became its CEO and pioneer (Vynakov, Savolova & Skrynnyk, 2016).
According to (Stringham, Miller & Clark, 2015), the steps to overcome the obstacles to entering the market were as follows:
Forming Partnerships: The company has significantly benefited from forming partnerships. The first factory was based on an existing General Motors factory, then the partnership with Toyota to produce some parts, the use of Lotus technology in cars, and many Japanese companies in electric battery technology.
Capital Leveraging: Tesla has capitalized on venture capital that wants to conquer new markets, like the completely new electric car market, after General Motors' prototype failed.
Expand markets: thrMotors'merous charging, distribution, and service stations, as well as the use of software companies to get a car powered by artificial intelligence and computers.
Benefit from government subsidies: Tesla receives $280 million in consumer tax credits, $520 million in regulatory credits, and $3.1 billion in tax incentives, all to encourage the development of a new automobile model that reduces environmental pollution.
Agency Theory:
According to Fox & Hamilton (1994), this theory is based on the company owner granting a power of attorney to someone to run the company. This power of attorney gives this person specific powers, including making decisions about the company’s investments. It is believed that the company derives a particular benefit from his/her ability to grow the company's capital and manage its assets effeccompany'stewardship Theory:
According to (Davis, Schoorman & Donaldson, 1997), this theory states that the right of supervision is given to a shareholder; he/she works to protect the interests of shareholders, generates profits for them, so he/she feels satisfied, and motivated when achieving organizational success as a whole and not just profitability.
Pros and Cons:
- According to (Arthurs & Busenitz, 2003), in the Agency model, the agent works for his personal interest, as he is concerned with what guarantees his profitability; in the Stewardship model, the interest of the company's owners and share company is preferrcompany'sis/her personal interest.
- In the Agency model, the agent and the shareholders seek to pay each other for personal benefit; in the Stewardship model, everyone seeks the public interest.
- In the Agency model the agent bears the risks arising from his/her decisions, in the Stewardship model, everyone is involved in the results and consequences.
Compatible Model for Tesla:
In my opinion, the model suitable for Tesla is a mixture of the Agency and Stewardship theory models, since from the beginning, Elon Musk was a co-shareholder working for the benefit of the shareholders and his personal interest until he moved the company through a set of strategies to what it is now. However, Elon Musk often harms the company's interests through the company's comcompany's tweets, which causes the company's people to file lawsuits against the company, and the company loses due to these lawsuits. However, the outcome now was and still is excellent, as the Tesla corporate governance model was and still is a role model for other companies.
Conclusion
Shareholders can make use of both the Agency and Stewardship theory models. This is done by following up on the course of matters and the steps taken by the executive managers and discussing them therein. The shareholders work by linking the incentives of the agents to the evaluation of the performance itself and the extent of progress (Donaldson & Davis, 1991); shareholders should not be satisfied with the reports submitted to them by the agents only; however, setting up committees that report to the board of directors to evaluate them before any disasters occur that affect the interests of shareholders.
References
Arthurs, J. D., & Busenitz, L. W. (2003). The boundaries and limitations of agency and stewardship theories in the venture capitalist/entrepreneur relationship. Entrepreneurship Theory and Practice, 28(2), 145-162.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Davis, Schoorman, and Donaldson reply: The distinctiveness of agency and stewardship theories. Academy of Management. the Academy of Management Review, 22(3), 611.
Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64.
Fox, M. A., & Hamilton, R. T. (1994). Ownership and diversification: Agency theory or stewardship theory. JOURNAL OF MANAGEMENT STUDIES-OXFORD-, 31, 69-69.
Kane, M (2022). Tesla Q4 2021 Final EV Delivery Numbers And Outlook". InsideEVs.. Cumulative", Tesla sold over 2"3 million electric cars."Stringham, E. P., Miller, J. K., & Clark, J. R. (2015). Overcoming Barriers to Entry in an Established Industry: TESLA MOTORS. California Management Review, 57(4), 85–103. Retrieved from EBSCO multi-search database in the Touro Library.
Vynakov, O. F., Savolova, E. V., & Skrynnyk, A. I. (2016). Modern electric cars of Tesla Motors company. (8, Iss. 2), 9-18.