Tesla's board and CEO Elon Musk made a big mistake in rejecting the Securities and Exchange Commission's "generous" settlement deal, Yale management guru Jeffrey Sonnenfeld told CNBC on Friday.
"What it tells us is this board, as a strategic plan, must be using the Jim Jones Jonestown suicide pact. They are drinking the Kool Aid of the founder. It is completely as self destructive as Musk is," Sonnenfeld said on "Squawk Alley."
Neither Musk nor Tesla were immediately available for comment.
Musk has been sued by the SEC for fraud, according to court documents filed Thursday.
Shares of Tesla were sinking about 12 percent Friday, on pace for their worst session in nearly five years.
On Aug. 7, Musk tweeted he was considering taking Tesla private, adding "funding secured." The tweet spurred a scandal-ridden fall for Tesla and sent the stock seesawing for weeks. The take-private idea was abandoned on Aug. 24.
Tesla and the SEC were close to a no-guilt settlement but Musk pulled out at the last minute, according to reporting by CNBC's Andrew Ross Sorkin.
Under the deal, Musk and Tesla would have had to pay a nominal fine, and the CEO would not have had to admit any guilt, said CNBC's David Faber, citing sources.
But those sources said Musk would have been barred from being chairman for two years and Tesla would have to appoint two new independent directors.
"It was an unbelievably generous deal," said Sonnenfeld, a senior associate dean at the Yale School of Management.
Sonnenfeld, also president of a nonprofit dedicated to CEO leadership and corporate governance, expressed disbelief the board would have turned down such a deal.
"The board has to somehow come up with a plan to both retain Musk, because he is so critical to the valuation," he said. But at the same time, the directors need to "restrain him" from further damaging the company or its shareholders, he added.
"They've got to put him in roles that are less damaging. They've got to control his tweetstorms — taking on investors, analysts, journalists and other critics of the company. He's out of control that way," Sonnenfeld argued.
Tesla's board has faced criticism from both investors and advocates who question its independence and oversight of Musk.
In a statement, the board said, "Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful U.S. auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees."
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