The Tesla Board of Directors can be as risky as an erratic general manager

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As Tesla came closer and closer to niche and high volume electric car manufacturers, discipline and concentration have never been more necessary. And with its ever-growing fund and multi-billion dollar shareholder needs, you'd think the turmoil sparked by CEO Elon Musk's erratic public comments would have set off an alarm for his board.

You would be wrong.

After the bankruptcy of its mid-term plan last month, six of Tesla's nine directors said, "We fully support Elon as he continues to run the company," while his tweets about privatization sparked litigation between shareholders and an investigation with the SEC. (Musk and his brother Kimbal, who are members of the board of directors, recused themselves from reviewing the plan.)

This occurred when he was talking about 120-hour work weeks, camping in the Fremont, California, Tesla plant, during his campaign to improve Model 3 production and sleep a little. . He said in tweets that he could be bipolar, made potentially slanderous comments about a Brit who helped save young Thai, had a failure in a conversation with a fan instead to take questions. Staff turnover among senior engineering and finance executives is also a concern, but throughout the process, the board has been silent.

"Enron, while it was collapsing, did not have a turnover as high as this company"

"The board of directors is completely careless here," said Jeffrey Sonnenfeld of the Yale School of Management. Forbes. "Enron, when it was falling apart, did not have as high a turnover as that of the company. If you go back 18 months, 50 important people left. … Where is the board of directors in terms of exit reviews and what is said by those leaving, at this unprecedented level of instability?

Musk has been a daring figure with a flare for the show since Tesla unveiled the fast electric Roadster at Santa Monica Airport in July 2006, with famous guests like Arnold Schwarzenegger, then governor of California. The company survived the collapse in 2008 and rebounded with a successful IPO in 2010. But it was the launch of the Model S sedan in 2012, combined with Musk's global ambitions, which made him a hero. for many Tesla customers and shareholders. He has never shown much restraint in public comment, but this habit has reached a whole new level this year.

"Of course, he's a creative genius. His model Nikola Tesla was too and guess what? Nikola Tesla was also unable to handle the scale, "said Sonnenfeld.

His advice? Tesla needs a disciplined leader, like Mark Fields, former CEO of Ford, someone who knows how to run complex industrial companies, but who also understands the changing technologies and markets.

Mr. Musk could better serve Tesla as "creative director and vice president or non-executive chairman," Sonnenfeld said. "It's not at the stage of life where he is fit to be CEO. At best, it still works as a startup. But it's not a startup any more.

Startup technology companies typically have user-friendly cards loaded with VC types. But as they grow and develop, they also need independent and committed board members. Eight years after its IPO, two thirds of the nine members of the Tesla Board of Directors seem to be solid musky allies. And judging by the lucrative ten-year compensation program that Tesla's board approved in March for Musk and that could bring tens of billions of dollars to the billionaire entrepreneur, he decided it was irreplaceable.

Fidelity and T. Rowe Price, two of Tesla's leading institutional shareholders, declined to comment on its corporate governance, but investors, including CalSTRS, which handles retirement on behalf of California teachers, and CtW Investments plank.

"The board needs to ensure that it manages the company for the benefit of all shareholders," said portfolio manager Aeisha Mastagni, who oversees the governance of companies in which CalSTRS invests. The council is full of conflict, including Elon's brother, Kimbal Musk, who has not taken his role as a board member seriously to attend at least 75% of meetings. "

CtW, who manages pension funds for unions, was one of the biggest advocates for a new Tesla board, although his latest effort was rejected at the annual shareholders meeting in June. "Most of the board members are longtime friends and business partners, and his brother," said Dieter Waizenegger, executive director of CtW.

These allies include the investor and the buddy Steve Jurvetson, co-founder of Draper Fisher Jurvetson. However, he has been on leave since November 2017, when he also left his former venture capital company due to an investigation into sexual harassment. It is not stated whether his Tesla seat will be given to another person.

"The fact that we have this vacancy on the board – it just shows that the board has not made a decision on what to do about it either," he said. said Waizenegger.

Take a look at the rest of the so-called "independent" table:

Ira Ehrenpreis, founder and managing partner of Silicon Valley venture capital firm DBL Partners, is a longtime friend of Musk and an investor of Tesla and SpaceX. He joined the Tesla board in 2007. Last year, Ehrenpreis missed the opportunity to produce the first 3 Tesla model, instead of replacing it with Musk. 46th birthday.

Antonio Gracias, a "freelance" board member, is another long-time friend who has supported Musk since his PayPal days through his firm Valor Equity Partners. He bought the second Tesla Roadster ever produced in 2008. He was also targeted by activist investors who want him out of the board because of these close ties.

Brad Buss, former Chief Financial Officer of SolarCity. He joined the board as an independent director in 2009, before taking the leadership of SolarCity. Musk was the main investor and president of SolarCity, and the company was run by two of his cousins.

Robyn Denholm, COO of Australian company Telstra Corp., joined Tesla's board of directors as an independent member in 2014 and its first director.

Linda Johnson Rice, president of Johnson Publishing Co., based in Chicago, which produces Ebony and Jet magazines, is one of the first players in the technology industry of Tesla or Silicon Valley and its first African-American member. The appointment of Rice and 21st Century Fox CEO James Murdoch in 2017 coincided with the efforts of activist shareholders for more diversity within the board of directors and members without business ties with Musk.

Over the years, shareholders have sued Musk and Tesla repeatedly for several issues. More recently, investors have escaped the action, believing that Musk's privatization tweets were an attempt to manipulate stock prices. For the most part, with the exception of an action against the acquisition of SolarCity, no lawsuits were filed against Tesla's board. But that could change.

"A shareholder could bring a derivative action that essentially says that the board does not exercise its duty of care"

"A shareholder could bring a derivative action in which the board does not exercise its duty of care, seek damages and seeks to change corporate governance," said attorney Peter Haveles , partner at Pepper Hamilton LLP. have active litigation against Tesla.

"It's a difficult path. It's not easy to get, "he said.

"Let's say that the company is in a situation because of all this embarrassment where in January they can not refinance their debt and that it is a total disaster.You are more likely to see derivative actions happen at this moment. "

Sonnenfeld, who has studied business management for decades and even knew that Steve Jobs, a Musk hero who had his own management problems, does not expect the board to really change until it happens. .

"They have to feel personal danger," he said. "They violate a duty of care. They ignore the facts and the operational, financial and communication failures. "

(Fixes: Updates periods of board membership for Brad Buss and Robyn Denholm, who have also been incorrectly listed as having been a director of SolarCity. Clarify that Antonio Gracias bought his Tesla Roadster.)

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As Tesla came closer and closer to niche and high volume electric car manufacturers, discipline and concentration have never been more necessary. And with its ever-growing fund and multi-billion dollar shareholder needs, you'd think the turmoil sparked by CEO Elon Musk's erratic public comments would have set off an alarm for his board.

You would be wrong.

After the collapse of its mid-term plan to take over private enterprise last month, six of Tesla's nine directors said:[W]We fully support Elon as he continues to steer the company forward, despite the fact that his tweets about privatization sparked a shareholder dispute and an investigation with the SEC. (Musk and his brother Kimbal, who are members of the board of directors, recused themselves from reviewing the plan.)

This occurred when he was talking about 120-hour work weeks, camping in the Fremont, California, Tesla plant, during his campaign to improve Model 3 production and sleep a little. . He said in tweets that he could be bipolar, made potentially slanderous comments about a Brit who helped save young Thai, had a failure in a conversation with a fan instead to take questions. Staff turnover among senior engineering and finance executives is also a concern, but throughout the process, the board has been silent.

"Enron, while it was collapsing, did not have a turnover as high as this company"

"The board of directors is completely careless here," said Jeffrey Sonnenfeld of the Yale School of Management. Forbes. "Enron, when it was falling apart, did not have as high a turnover as that of the company. If you go back 18 months, 50 important people left. … Where is the board of directors in terms of exit reviews and what is said by those leaving, at this unprecedented level of instability?

Musk has been a daring figure with a flare for the show since Tesla unveiled the fast electric Roadster at Santa Monica Airport in July 2006, with famous guests like Arnold Schwarzenegger, then governor of California. The company survived the collapse in 2008 and rebounded with a successful IPO in 2010. But it was the launch of the Model S sedan in 2012, combined with Musk's global ambitions, which made him a hero. for many Tesla customers and shareholders. He has never shown much restraint in public comment, but this habit has reached a whole new level this year.

"Of course, he's a creative genius. His model Nikola Tesla was too and guess what? Nikola Tesla was also unable to handle the scale, "said Sonnenfeld.

His advice? Tesla needs a disciplined leader, like Mark Fields, former CEO of Ford, someone who knows how to run complex industrial companies, but who also understands the changing technologies and markets.

Mr. Musk could better serve Tesla as "creative director and vice president or non-executive chairman," Sonnenfeld said. "It's not at the stage of life where he is fit to be CEO. At best, it still works as a startup. But it's not a startup any more.

Startup technology companies typically have user-friendly cards loaded with VC types. But as they grow and develop, they also need independent and committed board members. Eight years after its IPO, two thirds of the nine members of the Tesla Board of Directors seem to be solid musky allies. And judging by the lucrative ten-year compensation program that Tesla's board approved in March for Musk and that could bring tens of billions of dollars to the billionaire entrepreneur, he decided it was irreplaceable.

Fidelity and T. Rowe Price, two of Tesla's leading institutional shareholders, declined to comment on its corporate governance, but investors, including CalSTRS, which handles retirement on behalf of California teachers, and CtW Investments plank.

"The board of directors must ensure that it manages the company for the benefit of all shareholders," said portfolio manager Aeisha Mastagni, who oversees the governance of companies in which CalSTRS invests. "Unfortunately, this board is not independent enough to supervise Elon; The council is full of conflict, including Elon's brother, Kimbal Musk, who has not taken his role as a board member seriously to attend at least 75% of meetings. "

CtW, who manages pension funds for unions, was one of the biggest advocates for a new Tesla board, although his latest effort was rejected at the annual shareholders meeting in June. "Most of the board members are longtime friends and business partners, and his brother," said Dieter Waizenegger, executive director of CtW.

These allies include the investor and the buddy Steve Jurvetson, co-founder of Draper Fisher Jurvetson. However, he has been on leave since November 2017, when he also left his former venture capital company due to an investigation into sexual harassment. It is not stated whether his Tesla seat will be given to another person.

"The fact that we have this vacancy on the board – it just shows that the board has not made a decision on what to do about it either," he said. said Waizenegger.

Take a look at the rest of the so-called "independent" table:

Ira Ehrenpreis, founder and managing partner of Silicon Valley venture capital firm DBL Partners, is a longtime friend of Musk and an investor of Tesla and SpaceX. He joined the Tesla board in 2007. Last year, Ehrenpreis missed the opportunity to produce the first 3 Tesla model, instead of replacing it with Musk. 46th birthday.

Antonio Gracias, a "freelance" board member, is another long-time friend who has supported Musk since his PayPal days through his firm Valor Equity Partners. He bought the second Tesla Roadster ever produced in 2008. He was also targeted by activist investors who want him out of the board because of these close ties.

Brad Buss, former Chief Financial Officer of SolarCity. He joined the board as an independent director in 2009, before taking the leadership of SolarCity. Musk was the main investor and president of SolarCity, and the company was run by two of his cousins.

Robyn Denholm, COO of Australian company Telstra Corp., joined Tesla's board of directors as an independent member in 2014 and its first director.

Linda Johnson Rice, president of Johnson Publishing Co., based in Chicago, which produces Ebony and Jet magazines, is one of the first players in the technology industry of Tesla or Silicon Valley and its first African-American member. The appointment of Rice and 21st Century Fox CEO James Murdoch in 2017 coincided with the efforts of activist shareholders for more diversity within the board of directors and members without business ties with Musk.

Over the years, shareholders have sued Musk and Tesla repeatedly for several issues. More recently, investors have escaped the action, believing that Musk's privatization tweets were an attempt to manipulate stock prices. For the most part, with the exception of an action against the acquisition of SolarCity, no lawsuits were filed against Tesla's board. But that could change.

"A shareholder could bring a derivative action that essentially says that the board does not exercise its duty of care"

"A shareholder could bring a derivative action in which the board does not exercise its duty of care, seek damages and seeks to change corporate governance," said attorney Peter Haveles , partner at Pepper Hamilton LLP. have active litigation against Tesla.

"It's a difficult path. It's not easy to get, "he said.

"Let's say that the company is in a situation because of all this embarrassment where in January they can not refinance their debt and that it is a total disaster.You are more likely to see derivative actions happen at this moment. "

Sonnenfeld, who has studied business management for decades and even knew that Steve Jobs, a Musk hero who had his own management problems, does not expect the board to really change until it happens. .

"They have to feel personal danger," he said. "They violate a duty of care. They ignore the facts and the operational, financial and communication failures. "

(Fixes: Updates periods of board membership for Brad Buss and Robyn Denholm, who have also been incorrectly listed as having been a director of SolarCity. Clarify that Antonio Gracias bought his Tesla Roadster.)