Tesla’s board of directors seeks to show that it is prepared for the loss of the CEO

Tesla Inc.’s board of directors is facing increasing pressure to show how prepared they are for the potential loss of Elon Musk, the erratic CEO largely behind the skyrocketing rise and dramatic drop in the company’s valuation.

Karen Róbertsdóttir, a shareholder in Reykjavik, Iceland, filed a resolution for Tesla investors to vote in May on whether the board should prepare and maintain a key person risk report. Several other shareholders who wanted to submit proposals, at least one of which also concerned Musk, are frustrated with the release of Tesla’s annual meeting plans, saying it saved directors even more pressure.

If Róbertsdóttir’s motion reaches Tesla’s representative, it would give investors a tangible way to force Tesla to be more forthcoming about an area of ​​concern that has been growing since Musk took over Twitter Inc. The manufacturer’s directors The automakers engineered an unprecedented pay package years ago that seeded the CEO with the means to accept the $44 billion deal just as shares of tech and social media companies were beginning to plummet.

Twitter’s pressure on Musk’s personal finances (he recently became the first person to lose $200 billion in net worth) and his sale of nearly $40 billion of Tesla stock amid months of impulsive tweets have hurt several. Notable Tesla Investors. One accused the eight-member board of missing in action, while another mistook it for Musk on the social media service he overpaid for.

Tesla investor relations representatives and board chair Robyn Denholm did not respond to multiple requests for comment. The electric car maker dissolved its communications team in 2019.

Tesla shares were trading down 3.5% as of 1 p.m. New York time on Thursday. Shares have fallen more than 70% since Musk revealed in early April that he had taken an early stake in Twitter.

Róbertsdóttir shared a copy of the proposal she sent to Tesla through Sumtris ehf, the Icelandic limited liability company she runs as chief executive. She asked the automaker with only three appointed CEOs and no COOs to document processes and procedures for the succession of key people and mitigate the financial impact their loss would have.

“Tesla is frequently cited as a prominent example of a company that has so-called key person risk, due to the prominence of its CEO and the lack of a clear public succession plan or strategy to ameliorate the impacts of his loss,” wrote. “Currently, Tesla shareholders may have little confidence that such risk has been reduced at all.”

It may be around the time Tesla calls its annual meeting that investors find out from a Delaware judge whether the board’s decision to award a potential $55 billion worth of executive compensation package to Musk was marred by conflicts. of improper interest and disclosures.

The directors, including Denholm and James Murdoch, came under pressure during their November trial on whether the pay was excessive for a part-time chief executive who now runs four other companies. The son of media baron Rupert Murdoch said Musk had identified a possible successor to the chief executive in recent months, though he did not say who he was.

It’s unclear if a shareholder resolution on compensation will be on the agenda for Tesla’s May 16 annual meeting. The company announced the timing of the event on page 57 of its 60-page 10-Q filing in October and set a December 22 deadline for filing rulings.

There may be a few other shareholder proposals this year, after investors had eight to vote on in 2022. Tulipshare, a UK-based activist investment platform for retail traders, planned to file a payout opinion measure. to tie Musk’s compensation to environmental, social and governance metrics, but he was among several shareholders who missed Tesla’s disclosure 10 weeks ago.

“As the new owner of one of the largest social networks in the world, Musk has absolutely no excuse for this move,” said Antoine Argouges, founder and CEO of Tulipshare. “Instead, Tesla chose to do the bare minimum.”

Tesla often uses more outlets than just regulatory filings to make announcements about events, including annual meetings. This week, he issued an 8-K, a press release and a tweet about plans for investor day on March 1. In a tweet from its verified account in March of last year, the company said it would ask investors to authorize additional shares to allow for a second stock split in two years, then followed up the post with an 8-K.

Meredith Benton, the founder of an ESG-focused consulting firm who has been involved in shareholder activism for 20 years, said she had never seen a company announce an annual meeting date like Tesla did.

“I don’t know of anyone who has applied. I know of several who intended to do so,” the Whistle Stop Capital LLC founder said, referring to shareholder proposals. “Tesla’s investor relations team knows very well which investors have concerns with the company and might let people know as a courtesy. An 8-K press release would have been more appropriate.”

Several corporate governance experts said Tesla did what the US Securities and Exchange Commission legally requires by disclosing the date of its annual meeting in its 10-Q.

“I don’t have a lot of sympathy for the activists’ complaints,” said Jill Fisch, a University of Pennsylvania professor who teaches corporate law classes. “If the change from the annual meeting is in the securities disclosure, Tesla has met its obligations.”

Others were more receptive to shareholder complaints.

“It’s the kind of thing that a board that knows it’s going to be under pressure from shareholders tries to do to avoid awkward questions,” said Brian Quinn, a professor of corporate law at Boston University Law School. “It’s a short-term strategy, but it won’t stop disgruntled shareholders when activists inevitably call Tesla’s board. I suspect that day is not far off.

James McRitchie of Elk Grove, California, owns a Tesla Model S and has been a shareholder since 2012. He has filed seven proposals over the years, including declassifying the automaker’s board of directors and adopting a voting standard simple majority. This year, he planned to file a political spending disclosure resolution, but missed the filing deadline.

Tesla disclosed the meeting and filing deadline dates in a section of the 10-Q under the heading “other information,” McRitchie said. “How much more buried can you get?”.

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