Tesla Investors Press Automaker To Add Board Members Without Ties To Musk

5 months ago by Steven Loveday 10

Tesla CEO Elon Musk

Tesla CEO Elon Musk

Investors drafted a letter to Tesla’s lead independent director requesting the company to add board members without ties to Elon Musk.

Musk’s board is comprised of six members, five of which have direct connections with the CEO. The California State Teachers’ Retirement System, along with four other investors, fear that this situation could result in problems. The group of investors is asking that the Silicon-Valley startup begin a search for two additional independent directors, and move to yearly elections. According to Bloomberg, the letter sent to Tesla director, Antonio Gracias, included:

“Directors should be held to a higher standard of independence given the conflicts of interest that permeate this board. A thoroughly independent board would provide a critical check on possible dysfunctional group dynamics, such as groupthink.”

Despite record stock prices, partly due to the upcoming Model 3, investors push for accountability.

It seems that the electric automaker is honoring the recent letter. An email from a Tesla spokesperson reads:

“We are actively engaged in a search process for independent board members, which is something we committed to do several months ago, and expect to announce new additions fairly soon. We regularly engage with our shareholders and value their feedback.”

Tesla is also considering the move to annual director elections. Currently, Tesla has staggered three-year elections.

Tesla’s Current Board

  • Kimbal Musk: Elon’s brother
  • Antonio Gracias: A director at SpaceX
  • Robyn Denholm: CEO at Australia’s largest telecom company, Telstra Corp.
  • Brad Buss: former SolarCity CFO
  • Steve Jurvetson: SpaceX director
  • Ira Ehrenpreis: SpaceX investor

While Musk is the top shareholder, at ~21 percent, Gracias is actually the sixth-largest, with 3.75.

Etelvina Martinez, governing manager of CtW Investment Group, another of the letter signers, told Bloomberg:

“Getting independent people on the board is important in terms of holding management accountable. Shareholders need to be able to hold management accountable. While the stock price is doing extremely well, there are still concerns about corporate governance.”

Tesla is not the only company that is regularly persuaded by investors. This is the way the system works. Very few companies still have staggered three-year elections, and having an independent board is preferred and expected. Regardless of Tesla’s current stock success – share prices have soared 44 percent this year – the letter signers feel that it is important to address accountability sooner, rather than later. New York City Comptroller, Scott Stringer, told Bloomberg in an email about the situation:

“If Tesla truly wants to be forward-thinking, then it needs to embrace accountability and it needs to welcome diverse, independent opinions into its boardroom. Strong performance doesn’t insulate Tesla from accountability.”

Source: Bloomberg

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10 responses to "Tesla Investors Press Automaker To Add Board Members Without Ties To Musk"

  1. Toni says:

    What is the point in investing in Tesla if you do not trust Musk? Do they want him to change his strategy and stop doing the things that have made Tesla a successful company? Maybe they should educate themselves about what happened to Apple after they kicked out Steve Jobs…

    1. Omicron says:

      Erm, where did you get the part about “kicking out” Elon Musk from? He is not even *on* the board. He is CEO.

      What these shareholders are requesting is not to remove anyone, but rather to *add* more people. Specifically, they want to see people added that come from a different background than those already on the board. They want these new people to be there in order to avoid situations where the board does not act rationally because they are susceptible to an inherent bias through their personal connections to Musk.

      Making rational decisions is a good thing – pretty sure Elon himself would agree to that. 😉

    2. SJC says:

      They want a board that does not “rubber stamp” everything. Retractable door handles and falcon wing doors add risk, not value.

  2. Mister G says:

    The fossil fuel industry wants to make Tesla board of directors more fossil fuel friendly. Go Elon go don’t allow fossil fuel cronies to corrupt board of directors…stand firm.

  3. LOL says:

    No-one can change the world all by himself, therefore new entrants -independent on all levels- to the board are a good move. There are still a couple of areas Tesla hasn’t covered yet, like wireless on all levels as well as power towers in downtowns, hence if new members succeed in pronouncing it in 3D, then it would be good for Tesla. Though, I assume it would be an arduous task and call for quite a lot of courage to confront/defy Elon on any of this. Nonetheless, it’s worth a try, if they prove tough and persevering again and again, then Elon might take that into account.

  4. HVAC says:

    It appears the Solar City bailout caught the attention of their institutional investors.

    I agree with more independent board members who have more separation from the executive leadership and who own less Tesla stock, but going to annual rather than staggered-year board-member elections bothers me. Staggering board-member elections is one protection against hostile take-overs, which frequently end up being an asset-raid and bad for the long-term health of the company. Hostile take-overs, frequently from leveraged buy-outs, happen with asset-rich, under-valued-stock companies.

    Asset-rich and under-valued, though, is not how I’d describe Tesla at this moment.

  5. Terawatt says:

    I can’t make much sense of this. The board is elected by the general assembly. I would presume the general assembly is then also the only entity capable of changing the rules regarding board tenure and election?!?

    I’d be surprised if a lot of IEV readers know much about how this works, so without some basic background explanation the article is basically just confusing.

  6. Spider-Dan says:

    I’d say this is a pretty clear response to the SolarCity bailout. Makes sense.

  7. unlucky says:

    Although I’m not longer an investor as of about two weeks ago I support this.

    Musk is a great leader, but a board is a great check to discourage things like using investor money to bail out relatives’ projects.

  8. captylor says:

    why does it even matter?
    Since Elon has said that he “plans to step down as CEO after the Model 3 launch”?
    But, would stay around to make sure that Telsa will still make great products and not turn in to appliance/compliance brand. Or is this really just a-round-about way of saying we are looking for a new CEO to run Tesla?

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