Analysis-Musk tests limits of governance by having children with aide

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By Rachael Levy

(Reuters) - Elon Musk's decision to have children with one of his top executives at Neuralink pushed the limits of corporate governance norms, according to nine corporate governance experts who offered divergent interpretations of the startup's code of conduct for employees.

Known more widely for his electric car maker Tesla Inc and rocket developer SpaceX, Musk is also the chief executive of Neuralink, a company with about 300 employees that is seeking to develop chips that connect the human brain directly to machines.

He and Shivon Zilis, one of his direct reports at the company, had twin babies last November, Insider reported on July 6, citing a confidential court filing.

Zilis, 36, has since told some of her colleagues that she was not involved romantically with Musk, 51, and conceived the children with him through in vitro fertilization (IVF), according to five people familiar with the situation. Reuters could not establish the accuracy of Zilis’ account.

Zilis and spokespeople for Musk and Neuralink did not respond to requests for comment.

Relationships between supervisors and subordinates are frowned upon at companies and have cost some high-profile CEOs their jobs, as they violate most corporate policies and raise concerns about conflicts of interest, corporate governance experts said.

Neuralink’s 62-page employee handbook, a copy of which was seen by Reuters, prohibits dating, “personal relationships” and “close personal friendships” between employees in a direct supervisory relationship to avoid any conflicts of interest.

But the facts presented by Musk and Zilis’ relationship are so unusual that the corporate governance experts who reviewed the policy for Reuters expressed divergent views on whether they thought the entrepreneur had violated it by having children with his subordinate through IVF.

“Whatever lawyer wrote this language did not contemplate this situation,” said Nell Minow, vice chair of corporate governance consultancy ValueEdge Advisors, referring to the Neuralink code of conduct.

She added that the situation appeared to “fall between the cracks” of the policy’s intent to avoid conflicts of interest due to relationships between employees.

Neuralink’s code of conduct calls for relationships that can create a conflict of interest to be disclosed to the company’s “people operations manager” so that the company can decide whether it should take steps to eliminate any conflict.

Reuters could not learn whether Musk or Zilis had disclosed the relationship to Kristy Hilands, the people operations manager. Hilands did not respond to requests for comment.

Neuralink has accepted Zilis’ description of a non-romantic relationship, and she continues in her role as director of operations and special projects, a source familiar with the company’s handling of the matter said. In the weeks since the disclosure of their having children, Musk and Zilis have also continued working together, taking the helm at internal and external company meetings, according to two people with direct knowledge of the matter.

For example, after learning in recent weeks that competitor Synchron had beaten Neuralink to a human trial in the United States, Musk sent Zilis to approach the company’s CEO Thomas Oxley and arrange a meeting, according to three sources familiar with the matter. Zilis and Musk spoke with Oxley shortly after about a possible investment by Musk in Synchron, the sources said.

OPEN TO INTERPRETATION

Four of the corporate governance experts said they believed Zilis having children with Musk through IVF should be read as having a “personal relationship” or “close friendship” under Neuralink’s code of conduct. The code defines a personal relationship as one where the individuals have a “continuing relationship of a romantic or intimate nature and who are not married to each other.” It does not define a close friendship.

“You’re layering intimate familial bonds over professional relationships,” said Gabriel Rauterberg, a corporate law professor at the University of Michigan. “There is always the worry that someone with greater power will use their professional power in ways that are inappropriate.”

The other five corporate governance experts interviewed by Reuters either did not think Musk and Zilis’ arrangement was a breach under the Neuralink policy or could not come to a definitive conclusion.

Usha Rodrigues, a professor at the University of Georgia’s law school, said Musk and Zilis’ situation “may fall under ‘close friendship’ if there is an ongoing, co-parenting type relationship, but that is subject to interpretation.”

The extent of Musk’s involvement in the life of his children with Zilis could not be learned by Reuters. The court filing published by Insider shows that in April, they asked for the children to take Musk’s last name. Musk and Zilis also listed the same address in Texas.

Joan Heminway, a business professor at the University of Tennessee’s law school, said one cannot easily prove that Musk and Zilis are close personally, even if they had IVF together. “That’s the new wrench here,” she said.

(Reporting by Rachael Levy in Washington, D.C.; Editing by Greg Roumeliotis, Paritosh Bansal and Edward Tobin)