Tesla Shareholders Will Vote on Replacing Elon Musk as Chairman of the Board
|Does Musk have a conflict of interest?|
Earlier this year, Elon Musk agreed to stay on as Tesla’s CEO for another 10 years. But he may not remain as the chairman of its board. This week, the automaker announced some of the proposals to be voted upon at this year’s annual stockholder’s meeting. Among them was a bid to have Musk replaced by an independent director.
After previous complaints that board members were too closely tied to Elon, the company took on Johnson Publishing Company CEO Linda Johnson Rice and 21st Century Fox CEO James Murdoch. However, at least one shareholder is claiming that isn’t sufficient and drafted a proposal to have Musk replaced as chairman — saying that his involvement with SolarCity and SpaceX conflict with his commitment to Tesla Motors.
The proposal drafted by Jing Zhao, who is claimed to own only 12 shares of Tesla’s common stock, suggests that Musk’s dual role as chairman and CEO might have been necessary in the company’s infancy but is unnecessary in its current state. He also said an independent chairman is the norm on the international market and feels Tesla should follow suit.
According to Mercury News, the company has requested shareholders to vote down any proposal that it appoint any board chairman who is otherwise independent from the company. Here is the statement issued to shareholders:
“The Board believes that the Company’s success to date would not have been possible if the Board was led by another director lacking Elon Musk’s day-to-day exposure to the Company’s business. In light of the significant future opportunities for growth and the careful execution needed in order for the Company to achieve it, the Board believes that the Company is still best served by Mr. Musk continuing to serve as Chairman.
Moreover, the role of the Lead Independent Director protects the Company against any potential governance issues arising from a non-independent director serving as Chairman. This position is vested with broad authority to lead the actions of the independent directors and communicate regularly with the Chief Executive Officer. Additionally, the Company now has seven independent directors following the addition of two additional independent directors in July 2017. The Board believes that the broad authority of the Lead Independent Director and the presence of six other independent directors ensures that the Board acts independently. This current Board structure also is consistent with majority practice at large public companies: according to the 2017 Spencer Stuart Board Index, 72 [percent] of companies in the S&P 500 do not have an independent board chairman.
The proponent acknowledges that a combined Chief Executive Officer and Chairman is an effective form of leadership for an early-stage company, until it faces increased competition and rapid technological changes. The Board believes that it is precisely during times when a company must quickly adapt to constant change and outside pressures that Board leadership needs to be lockstep with the Company’s operations. Our achievements to date notwithstanding, the Company is still at a point in its development where we must execute well in order to realize our long-term goals, and separating the roles of Chief Executive Officer and Chairman at this time would not serve the best interests of the Company or its stockholders."
Despite the recent hardships Tesla has been faced with, we doubt this proposal has any chance of passing. Elon Musk still has a huge amount of support from shareholders but the move does show that their confidence could be waining a bit during these troubled times. The vote takes place on June 5th, likely with Musk sitting at the head of the table in the aftermath. TheTruthAboutCars