The cult of an Elon Musk or a Jack Ma has its perks—but also perils

“I AM BECOME meme, Destroyer of shorts.” This recent tweet by Elon Musk struck a messianic tone that his disciples lap up. The past month has boosted the cult status of the uber-entrepreneur. The GameStop saga gave him ammunition in his long-running battle with short-sellers, while also positioning him as a champion of the little guy taking on Wall Street. This week fans were spellbound by the announcement that Mr Musk’s electric-car maker, Tesla, had invested $1.5bn in bitcoin and would start accepting the cryptocurrency as a form of payment. Earlier, a barrage of cheeky tweets from Mr Musk about dogecoin (“the people’s crypto”) had sent serious investors scrambling to learn more about a digital currency that started as a joke.

Impish humour is a Musk hallmark, but the impact of his missives is no joke. They can set herds stampeding. His bitcoin announcement propelled it to new heights. Tesla’s market value briefly climbed back towards $830bn, near its peak. The history of business is littered with Pied Pipers but, as Peter Atwater, a social psychologist, points out, none has matched Mr Musk for the number of things he has helped turn red-hot, from cars and crypto to space travel and Clubhouse, a live-podcasting app he appeared on. That invites two questions. What makes the Musk scent so intoxicating to so many? And what are the pros and cons of being a cult CEO?

Larger-than-life business figures enjoy various degrees of celebrity. One category includes bosses of big firms who, while charismatic, fail to inspire feverish devotion. Jeff Bezos, Amazon’s outgoing boss, commands admiration on Wall Street and envy in other corner offices, but is too restrained to attract drooling groupies. Similarly, in his 20 years running GE, Jack Welch earned a reputation (since disputed) for red-toothed success, but was too cold-blooded to mesmerise the masses.

The second group comprises tycoons who achieve cultlike status but whose businesses scarcely warrant the adulation. Their trademark is often shameless self-promotion. Richard Branson has spent decades cultivating an image as a corporate hippy-cum-pirate who takes on complacent incumbents in industries from aviation to finance. Donald Trump touted himself as the arch-dealmaker. Both have hordes of wide-eyed fans. Neither has built a business that comes close to $10bn in value or is built for stability.

The third category is more exclusive: those who build both cults of personality and huge businesses. Joining Mr Musk in this club is Jack Ma, the founder of Alibaba, China’s tech titan. Millions of Chinese college students and other wannabe entrepreneurs bought into the image he cultivated, of a humble teacher turned philanthropic tech titan with a splash of cultural cool (he once appeared as a tai chi master in a martial-arts film). Admiration of Mr Ma has often verged on religious fervour. In 2015 a group of online merchants created a shrine to him, to bring them good luck on “singles day”, an e-shopping festival.

Messrs Musk and Ma walk a trail blazed by an Indian business legend: Dhirubhai Ambani, who founded Reliance Industries, a petrochemicals-to-telecoms conglomerate. The son of a village schoolteacher who cut his teeth trading polyester yarn, Ambani pioneered the equity cult. His trick, in a country where companies had long relied mostly on banks for funding, was to see the untapped potential lower down the pyramid. He toured India, convincing middle-class savers that they, too, could join the capitalist class. When Reliance went public in 1977 it attracted 58,000 punters. The shareholders he drew in have done well: the share price has gained 275,000% since the flotation. When 30,000 of them turned up to pay homage at one general meeting, it had to be moved to a park. These days only Warren Buffett attracts zealots in such numbers (or did before covid-19).

Cult status confers perks. Equity is cheaper when those buying it are devout retail investors, not hard-headed institutions. Small investors are also more patient, heeding calls to “keep the faith” during profitless investment splurges. Marketing costs are low; Mr Musk can use social media to burnish his (and Tesla’s) brand for nothing. Fans are willing to overlook flaws that more dispassionate consumers won’t. Tesla’s build quality is hardly world-class and regulators, most recently China’s, frequently flag up concerns. Yet it is hard to see that reflected in the firm’s sales or share price. Lastly, mass appeal means political clout. Ambani’s popularity helped him bend India’s trade policy to his advantage. Mr Musk’s helps explain soft treatment by governments and regulators, over rogue tweets or reopening factories in the pandemic.

But combining star power and scale is not risk-free. Mr Musk forged his reputation as a David, fomenting rebellions against Detroit and Wall Street elites. But now he is a Goliath: the world’s richest man who runs its most valuable carmaker. Playing both roles is a dangerous game. This is made more so by being a cultural icon, which leaves him more vulnerable to changing social taste—and taste can change in a trice online.

Ye shall fund you no idols

Sentiment could turn if his devotees start to doubt he has their interests at heart. Ambani was able to bat away repeated allegations of financial manipulation; he beat back short-sellers with help from a group of brokers known as “Friends of Reliance”. Mr Musk may not be so lucky. Acolytes who piled into GameStop stock after his “Gamestonk!!” rallying cry on January 26th were buying near the top. His recent crypto-talk looks self-serving in light of Tesla’s bitcoin move.

Finally, political advantage can turn into a bane. Just ask Mr Ma, who, overestimating his power, publicly chided Chinese regulators last year. Irked, Beijing scuppered the planned listing of Ant, Alibaba’s financial affiliate, and is forcing it to restructure. Joining the ranks of cult CEOs may lower your cost of funding. But it raises the cost of miscalculation.