Since Elon Musk took over Twitter final month, his stewardship of the social community has been marked by turmoil, intrigue and no scarcity of questions. Right here’s one: How a lot time is he spending on his job as chief govt of Tesla, the electric-car maker?
Robyn Denholm, Tesla’s chairwoman, testified in court docket final week that though she didn’t know the reply, she was not perturbed. “The quantum of time isn’t a measure that considerations me,” she mentioned. “It’s extra the outcomes that he’s in a position to drive.”
However as Mr. Musk has grow to be consumed with Twitter, Tesla is dealing with a variety of threats to its enterprise and its inventory value has been plunging. Some company governance specialists say Tesla’s board wants to make sure that the corporate has a chief who shouldn’t be distracted.
“They’re violating their fiduciary duty in the event that they don’t tackle that concern head on,” mentioned William Klepper, a professor of administration at Columbia Enterprise College.
Tesla’s board has lengthy been criticized by shareholder teams for missing independence from Mr. Musk. When Tesla’s inventory value was hovering and the corporate appeared to have the electric-car market largely to itself, that argument discovered little resonance.
Now Tesla is dealing with a lot fiercer competitors, particularly in China, an enormous marketplace for the corporate, and it’s nonetheless contending with provide chain issues and scrutiny of questions of safety with its driver-assistance techniques. Its inventory has plummeted almost 60 p.c from its peak a yr in the past; since Mr. Musk purchased Twitter final month, the S&P 500 inventory index has risen 4.5 p.c, however Tesla shares are down 25 p.c. Mr. Musk has bought roughly $30 billion of Tesla inventory this yr and final, partly to assist finance his Twitter acquisition.
“I’d count on {that a} good board can be doing all the things it will possibly to make sure that a C.E.O. was sufficiently centered on their firm,” mentioned Brianna Castro, senior director of U.S. analysis at Glass Lewis, a shareholder advisory agency. “And in conditions just like Tesla’s, a very good board can be involved why their inventory is down when the market is up, and doing what they’ll to deal with any points.”
Some company governance specialists are involved that the board members’ views could also be clouded by their private relationships with Mr. Musk. Mr. Musk’s brother, Kimbal, is a member, and different administrators, like James Murdoch, a media govt and a son of Rupert Murdoch, are longtime buddies of Mr. Musk. Some Tesla board members have monetary ties to Mr. Musk’s different companies, like SpaceX, the rocket firm.
One other issue: Tesla’s administrators obtain compensation, virtually totally in inventory, that’s many instances bigger than what administrators get at different giant firms, enabling a few of them to amass fortunes through the years.
“If the pay is so compelling that the director goes to be motivated to do no matter in all fairness doable to maintain that gravy prepare rolling,” mentioned Marc Goldstein, head of U.S. analysis at ISS Governance, a shareholder advisory group, “that can intervene with the director exercising impartial oversight over the administration group.” ISS has advisable voting towards re-electing sure Tesla administrators.
Mr. Musk and Tesla didn’t reply to requests for remark.
Ms. Denholm’s testimony within the Delaware Court docket of Chancery final week arose over a pay deal Mr. Musk obtained in 2018 that ended up awarding him tens of billions of {dollars} Tesla inventory. A shareholder filed a lawsuit asserting that the payout was extreme and that the board didn’t act with enough independence when approving it.
Mr. Musk was each chief govt and chairman of Tesla till he was required to step down as chairman as a part of a settlement with the Securities and Change Fee in 2018 to resolve securities fraud prices.
Ms. Denholm, a former telecom govt who assumed the chair, has made enormous sums as a director. Her compensation, composed virtually totally of inventory choices, was $5.8 million in 2020, nicely in extra of the typical pay for a director at a big public firm.
A examine by Steven Corridor, a compensation marketing consultant, confirmed that director pay was on common simply over $300,000 at giant firms in 2020. On the larger finish, John L. Hennessy, the chairman of Alphabet, Google’s dad or mum, had compensation of $620,000 final yr.
And Tesla securities filings present that since 2014, the corporate awarded Ms. Denholm compensation, paid virtually utterly in Tesla inventory choices, that the corporate valued at greater than $30 million. As Tesla’s inventory rose in worth, she was in a position to promote her shares for vital beneficial properties. Since 2020, she has bought Tesla inventory value $280 million, in response to securities filings. Ms. Denholm didn’t reply to requests for remark.
Within the trial over the shareholder swimsuit, attorneys for the plaintiff, who desires Mr. Musk’s 2018 pay deal to be voided, sought to indicate that Tesla’s board was extra like a personal membership than a committee of seasoned professionals devoted to looking for shareholders. Tesla administrators detailed their private connections to Mr. Musk and typically with each other.
A few of them pointed to the sharp rise within the firm’s inventory value since 2019 as proof that Mr. Musk had achieved an amazing job and was invaluable to the automaker.
Ira Ehrenpreis, an investor who heads Tesla’s compensation committee, has been near Mr. Musk for years. In line with court docket paperwork, he helped Mr. Musk design the 2018 pay deal, which, after Mr. Musk fulfilled 11 of 12 efficiency targets, paid out inventory now value about $40 billion, at Tesla’s present share value.
In 2018, Tesla paid Mr. Ehrenpreis almost $10 million, virtually all in inventory choices, to cowl three years, for his board duties. He didn’t reply to requests for remark.
Antonio Gracias, an investor who was on Tesla’s board till final yr, acknowledged in court docket that he had recognized Mr. Musk for greater than 20 years and that the 2 had endured “plenty of robust instances” collectively, bringing them nearer. He acknowledged he and Mr. Musk had vacationed collectively, been to one another’s properties, shared meals and mentioned their kids. Mr. Gracias additionally acknowledged that he attended Mr. Musk’s second wedding ceremony and Kimbal Musk’s wedding ceremony, and that he was pleasant with Mr. Musk’s mom and sister. Mr. Gracias acknowledged he had been on ski journeys with Mr. Musk and described James Murdoch as “an incredible skier.”
Mr. Gracias mentioned he was in a position to preserve his independence whereas vacationing with Mr. Musk due to their “trusting and respecting relationship.” Mr. Gracias didn’t reply to requests for remark for this text.
In court docket, Mr. Murdoch mentioned he met Elon Musk within the late Nineteen Nineties when Mr. Musk was engaged on a digital promoting enterprise. The 2 reconnected after Mr. Murdoch, then residing in Britain, bought one of many first Tesla automobiles bought in Europe and Mr. Musk reached out to thank him. Mr. Murdoch mentioned he had been to Jerusalem and Mexico with Mr. Musk and his household. He additionally acknowledged he had attended Kimbal Musk’s wedding ceremony, dined with Kimbal Musk and his spouse and personally invested in SpaceX. Mr. Murdoch additionally mentioned he had bought shares of Tesla earlier than becoming a member of its board.
Since becoming a member of the board in 2017, Mr. Murdoch has obtained $11 million, largely in inventory choices, for being a Tesla director and has a stake within the firm value greater than $200 million, in response to estimates based mostly on Tesla’s securities disclosures. Mr. Murdoch didn’t reply to requests for touch upon his Tesla holdings and whether or not the board was doing sufficient to make sure that Mr. Musk was not distracted.
Mr. Murdoch testified within the Delaware court docket {that a} board committee was monitoring the state of affairs at Twitter, including that Mr. Musk had in latest months recognized a possible successor at Tesla however didn’t say who it was.
In court docket final week, Mr. Musk sought to make gentle of inferences that Tesla’s board was an elite membership of buddies. When requested about his holidays with Mr. Murdoch, he mentioned his day off was much less centered round leisure and extra on getting work achieved, describing it as “e-mail with a view.”