A group of funds led by SOC Investment Group registered on Monday its dissent on electing Tesla’s (Nasdaq: TSLA) former Chief Technology Officer J.B. Straubel to the board of directors, calling the co-founder’s addition to the board contributing to the “dearth of independence.”
“While we appreciate the contributions Mr. Straubel made as co-founder and long-time Chief Technology Officer of Tesla, he is clearly a company insider and not an appropriate choice for a Board that already has a dearth of independence,” the investor group said in a letter to Tesla shareholders.
The EV maker is set for an annual meeting on May 16 where it will elect members of its 8-person board of directors. Straubel is being nominated to replace independent director Hiro Mizuno.
The group of investors explained that if Straubel is elected, 5 out of the 8 board members “will be non-independent, bringing the independence level down to a paltry 38%.” They added that the current composition of the board has close ties to CEO Elon Musk, with his brother, Kimbal Musk, and personal friends Ira Ehrenpreis and James Murdoch serving as directors.
“Replacing an independent director with another insider risks exacerbating existing problems that seem to arise from such a clubby Board, including an overcommitted CEO, high CEO and director compensation, a weak pledging policy, an outspoken CEO whose comments are often at the expense of Tesla’s reputation, and a permissive tone-at-the-top that has allowed a long-simmering ethics crisis to fester,” added the shareholders.
Tesla stock has dropped 46% in the last year, compared to a 7% drop in the S&P 500 index SPX. However, the stock is up 49% so far this year, compared to the S&P 500’s 8% gain.
The value drop is being attributed partly to Musk’s acquisition of Twitter, with observers critically pointing out that the chief executive is too preoccupied with the social media platform at Tesla’s expense.
Tesla stock also recently fell more than 7% in an extended session last week after the electric-vehicle manufacturer narrowly missed quarterly revenue projections and saw adjusted profit margins fall as it reduced EV prices.
For SOC Investment, a non-independent board that would be “overly deferential to [Musk]” would spell issues on oversight and management.
“Currently, [Musl] divides his time as CEO of three companies (Tesla, SpaceEx, and Twitter) and as founder at two more (The Boring Company and Neuralink). Moreover, he recently announced that he is launching a third start-up, TruthGPT,” explained the shareholders.
Among the examples outlined to highlight the board’s “weakness” due to lack of independence include granting Musk a “mega-compensation package” and not stepping in “when Musk reportedly pulled more than 50 employees, mostly software engineers, from Tesla to work at Twitter.”
The board also reportedly “allowed Musk to pledge up to 25% of his Tesla stock as collateral for personal indebtedness.”
“Elon Musk’s often polarizing and inflammatory statements on Twitter have negative ramifications on Tesla’s reputation,” said the investor group, calling for a “strong, independent board to counterbalance [Musk’s] behavior.”
According to the letter, the shareholder group requested a meeting with Tesla’s board chair, Robyn Denholm, to discuss “a comprehensive board overhaul” that would include bringing in “truly independent directors,” but had not received a response.
SOC Investment Group and the other groups — Investor Advocates for Social Justice, Nia Impact Capital, Nordea Asset Management, PensionDanmark, Shareholder Association for Research and Education (SHARE), Sisters of the Good Shepherd, and Tulipshare Ltd. — which collectively own less than 1% of Tesla’s shares, signed a letter sent to Tesla’s board on Friday on behalf of 17 shareholders that collectively own $1.5 billion worth of shares in the company.
That letter emphasizes the same points as the letter to other investors. It requests that the board rein in Musk and devise a strategy to modify the board’s membership due to its lack of independence. The group has requested a meeting with the board by May 25.
Straubel became a co-founder of Tesla after joining as the company’s fifth employee in 2004. He served as its first chief technological officer before transitioning to an advising role in July 2019.
Tesla last traded at $159.68 on the Nasdaq.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses
