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A confrontation with the US Securities and Exchange Commission could prove to be the recipe for reform that corporate governance experts have said Tesla Inc.'s board needed years ago .
The electric car builder was forced to find an independent president to replace Elon Musk as part of a $ 40 million deal with the SEC to settle fraud charges related to his tweets over the privatization of Tesla . The company will also need to add two new independent directors and put in place controls to oversee the communications of its declared CEO.
This is a long-overdue reform that many investors, proxy advisers and academics have criticized Tesla's board for being conflict-ridden and under-servicing its visionary CEO. The 47-year-old billionaire recently made a series of unofficial mistakes that could distract employees of the company that was losing money, as they sought to mass-produce and deliver cars on a massive scale. the first time.
In the weeks following the sending of poorly designed tweets last month on the share repurchase at $ 420 per share, Musk smoked marijuana during an interview with an actor and has was sued for defamation by a caving diver whom he described as pedophile. The blunders coincided with an exodus of senior executives and the sale of Tesla shares.
Meanwhile, Tesla's board members issued several statements claiming that they continued to support Musk. The nine-director board includes Musk; his brother, Kimbal; and four long-time partners.
"The addition of two other directors will have the effect of negating its dominance," said Musk's Stephen Diamond, an associate professor of law at the University of Santa Clara, specializing in the government of Canada. 39; company.
Email of Musk
Hours after Musk reached an agreement with the SEC and Tesla decided not to put in place controls and disclosure procedures for CEO tweets, he e-mailed employees to encourage them to encourage vehicle deliveries. before the end of the third quarter.
"We are very close to achieving profitability and proving that the opponents are wrong, but, to be sure, we must really perform well tomorrow (Sunday)," Musk wrote to the staff. "If we do everything we can tomorrow, we will win an epic victory that will exceed all expectations."
The settlement between Tesla and the SEC requires the company to pre-approve any written submissions that may contain important information, including tweets.
The separate deal with Musk was stricter than the terms he had waived Thursday, the New York Times reported. The $ 20 million penalty that he agreed to pay was double what was on the table earlier, and a year was added to his ban on becoming president again.
President's proposal
The SEC obtained a concession from Musk and the board of directors that an individual investor wanted to obtain at the company's annual meeting in June. The shareholders rejected the proposal to require the chairman of the company to be an independent director, with around 83% of the votes cast against the measure.
The addition of an independent chairman to Tesla could help to better distinguish the traditional roles of the board of directors and management. While the chief executive focuses on operations, an independent board leader could better control strategy and decision-making.
Three Board Members – Antonio Gracias, founder of a private equity firm; Kimbal Musk, an entrepreneur of the food industry; and James Murdoch, CEO of Twenty-First Century Fox Inc. – was also re-elected in June despite a campaign against them by CtW Investment Group. The activist affiliated with the union pension fund had argued that problems such as the model 3 missed production targets showed that the board had not sufficiently governed Musk and the company.
CtW also criticized Gracias, the principal independent director of the Tesla Group, for failing to insist that Steve Jurvetson resign from the board of directors, who broke with the venture capital company he co-founded at the time. allegations of misconduct last November. He stayed on leave as a director.
A year earlier, Tesla shareholders had sided with the board of directors to reject a proposal by a group of Connecticut pension funds that would require directors to be re-elected at each annual meeting instead of filling staggered terms. three years.
SolarCity Conflicts
Some investors also challenged directors' comfort with the CEO during the run-up to the SolarCity Corp. acquisition. by Tesla in 2016. Musk's cousins led the solar panel installer who was losing money, and Musk owned more than 20% of both activities at the time. of the transaction. Voter adviser Glass Lewis & Co. called the project a "thinly veiled bailout" in which Tesla paid $ 2 billion and took over SolarCity's $ 2.9 billion debt.
"It's not often that a lawsuit brought before the SEC can be considered an opportunity, but it's one of the rare cases," wrote Gene Munster, managing partner of the venture capital firm Loup Ventures. , in a report published Saturday. Al Gore, Vice President of the US Presidential 2000 and Director of Apple Inc., or Jim McNerney, former CEO of Boeming Co., Planner, could be good candidates for appointment to the Board of Directors Tesla, he said.
"The role of chairman of the open board of directors creates an opportunity for Tesla to potentially put in place a person who can influence Musk and help Tesla achieve sustainability," said Munster.
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