Thu, Apr 13, 2017 - Page 10 News List

Tesla investors demand board shake-up

Bloomberg

An influential group of investors is pressing Tesla Inc to add two board directors who do not have ties to chief executive officer Elon Musk, a sign that concerns over the firm’s corporate governance remain as its shares soar.

Five of Musk’s six fellow board members have personal or professional connections to him, which could jeopardize their independence, the California State Teachers’ Retirement System and four other investors wrote in a letter Monday to Tesla’s lead independent director.

The managers of a combined US$721 billion in assets are also pushing for yearly director elections, rather than votes staggered every three years.

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

The investors’ push reflects long-standing concerns with Tesla’s boardroom.

Investors took issue with directors’ ties to Musk during the lead-up to last year’s merger with SolarCity Corp. Musk’s cousins ran the money-losing solar-panel installer and he owned more than 20 percent of both businesses.

Pressure to strengthen management oversight is rising as Tesla’s market value climbs and rivals some of the world’s biggest automakers.

“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,” a Tesla spokesman said in an e-mail. “We regularly engage with our shareholders and value their feedback.”

Tesla has yet to publish the proxy for its upcoming annual meeting.

In correspondence with the US Securities and Exchange Commission, the Palo Alto, California-based company has indicated a proposal for annual director elections from the Connecticut Retirement Plans and Trust Funds will be voted on this year. The Connecticut funds are among the investors who signed the letter to Gracias, along with Calstrs, the second-largest US pension fund.

“Getting independent people on the board is important in terms of holding management accountable,” Etelvina Martinez, the corporate governance manager at CtW Investment Group, which also signed the letter, said in a telephone interview. “Shareholders need to be able to hold management accountable. While the stock price is doing extremely well, there are still concerns about corporate governance.”

Musk is Tesla’s largest shareholder, with a stake of almost 21 percent, according to data compiled by Bloomberg. Gracias is the sixth-biggest, with a 3.75 percent stake.

While the pension funds behind the letter do not have large positions in Tesla on their own, they are influential among other institutional investors.

Calstrs was one of the founding members of the Investor Stewardship Group, which assembled major fund managers to set corporate governance goals in January. The group, whose members include BlackRock Inc, State Street Corp, Vanguard Group and T. Rowe Price Group, generally backs annual board elections to increase accountability to shareholders.

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