December 4, 2022

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Elon Musk's role on Twitter puts Tesla's board under new scrutiny

Elon Musk’s role on Twitter puts Tesla’s board under new scrutiny

Since Elon Musk took charge of Twitter last month, his management of the social network has been characterized by turmoil, intrigue, and no shortage of questions. Here’s one: How much time does he spend in his job as CEO of Tesla, the electric car maker?

Tesla chief Robyn Denholm testified in court last week saying that although she didn’t know the answer, she wasn’t worried. “The amount of time is not a metric that interests me,” she said. “It’s the most results he can achieve.”

But as Mr. Musk becomes consumed with Twitter, Tesla faces a host of threats to its business, and its share price is plummeting. Some corporate governance experts say Tesla’s board needs to make sure the company has a boss who isn’t distracted.

“They’re violating their fiduciary responsibility if they don’t address this issue directly,” said William Kleber, a professor of management at Columbia Business School.

Tesla’s board of directors has long been criticized by shareholder groups for its lack of independence from Mr. Musk. When Tesla’s share price was skyrocketing and the company seemed to have the electric car market mostly to itself, this argument found little resonance.

Tesla now faces fiercer competition, especially in China, a huge market for the company, and it continues to struggle with supply chain and audit issues. Safety issues with driver assistance systems. Its stock is down about 60 percent from its peak a year ago. Since Mr. Musk Twitter bought In the past month, the S&P 500 stock index is up 4.5 percent, but Tesla shares are down 25 percent. Mr. Musk sold nearly $30 billion in Tesla stock this year and last, in part to help fund his Twitter acquisition.

“I would expect a good board to do everything it can to ensure that the CEO is adequately focused on his company,” said Brianna Castro, senior director of US research at shareholder advisory firm Glass Lewis. “And in situations similar to Tesla, a good board would worry about why their stock is going down when the market is on the upswing, and do what they can to address any issues.”

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Some corporate governance experts worry that the board members’ opinions may be clouded by their personal relationships with Mr. Musk. Kimball, Mr. Musk’s brother, is a member, and the other directors, like James Murdoch, a press officer and son of Rupert Murdoch, are longtime friends of Mr. Musk. Some members of Tesla’s board of directors have financial ties to Mr. Musk’s other companies, such as SpaceX, the rocket company.

Another factor: Tesla managers receive compensation, almost entirely in shares, and this is many times greater than what managers in other large companies receive, which enables some of them to accumulate fortunes over the years.

“If the salary is so compelling that the manager is motivated to do everything reasonably possible to keep the gravy train moving,” said Mark Goldstein, head of US research at the ISS Governance, a shareholder advisory group, it will interfere with the manager exercising independent oversight of the company. Management team.” The ISS has recommended that some Tesla managers be voted against for re-election.

Mr. Musk and Tesla did not respond to requests for comment.

Denholm’s testimony arose in the Delaware Court of Chancery last week about a payment deal Mr. Musk obtained in 2018 that ended up giving him tens of billions of dollars in Tesla stock. A shareholder sued that the payment was excessive and that the board did not act independently enough in approving it.

Mr. Musk served as CEO and Chairman of the Board of Directors of Tesla until he was asked to step down as Chairman of the Board part of the settlement With the Securities and Exchange Commission in 2018 to settle securities fraud charges.

Ms. Denholm, former communications executive He took the chairHe made huge amounts of money as a director. Her compensation, which consists almost entirely of stock options, was $5.8 million in 2020, well above the average pay for a director at a large public company.

A study by Steven Holl, a compensation consultant, showed that a manager’s pay averaged just over $300,000 at large companies in 2020. At the higher end, John L. Hennessy, president of Alphabet, Google’s parent company, earned compensation. $620,000 last year.

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And Tesla stock filings show that since 2014, the company has awarded Ms. Denholm compensation, paid almost entirely in Tesla stock options, valued at more than $30 million. As Tesla’s stock value soared, it was able to sell its shares for a significant gain. Since 2020, it has sold $280 million worth of Tesla stock, according to securities filings. Ms. Denholm did not respond to requests for comment.

At the trial for the shareholder lawsuit, lawyers for the plaintiff, who wants to overturn Musk’s 2018 pay deal, sought to show that Tesla’s board was more like a private club than a panel of seasoned professionals devoted to seeking out shareholders. Tesla executives have detailed their personal relationships with Mr. Musk and sometimes with each other.

Some have pointed to the sharp rise in the company’s share price since 2019 as evidence that Mr. Musk has done a tremendous job and has been invaluable to the auto industry.

Ira Ehrenprice, the investor who chairs Tesla’s compensation committee, has been close to Musk for years. According to court documents, he helped Mr. Musk design the 2018 wage deal, which, after Mr. Musk met 11 of his 12 performance goals, paid him stock worth about $40 billion at Tesla’s current stock price.

In 2018, Tesla paid Mr. Ehrenpreis nearly $10 million, almost all in stock options, to cover three years, for board duties. He did not respond to requests for comment.

Antonio Gracias, an investor who sat on Tesla’s board until last year, admitted in court that he had known Musk for more than 20 years and that the two had “many hard times” together, which brought them closer. He admitted that he and Mr. Musk vacationed together, were at each other’s homes, shared meals and discussed their children. Mr. Gracias also acknowledged that he attended Mr. Musk’s second wedding and Kimbal Musk’s wedding, and that he was friendly with Mr. Musk’s mother and sister. Mr. Gracias admitted to having been on ski trips with Mr. Musk and called James Murdoch “a great skier”.

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Mr. Gracias said he was able to maintain his independence while vacationing with Mr. Musk because of their “relationship based on trust and respect.” Mr. Gracias did not respond to requests for comment for this article.

In court, Mr. Murdoch said he met Elon Musk in the late 1990s when Mr. Musk was working for a digital advertising company. The two reconnected after Mr. Murdoch, then living in Britain, bought one of the first Tesla cars sold in Europe, and Musk reached out to thank him. Murdoch said he visited Jerusalem and Mexico with Mr. Musk and his family. He also acknowledged that he attended Kimbal Musk’s wedding, dined with Kimbal Musk and his wife and was personally invested in SpaceX. Murdoch also said he bought shares in Tesla before joining its board.

Since joining the board in 2017, Mr. Murdoch has received $11 million, mostly in stock options, for being a Tesla director and has a stake in the company worth more than $200 million, according to estimates based on Tesla stock disclosures. Mr. Murdoch did not respond to requests for comment on his Tesla holdings and whether the board is doing enough to ensure that Mr. Musk is not distracted.

Mr. Murdoch testified in a Delaware court that a board committee had been monitoring the situation on Twitter, adding that in recent months Mr. Musk had identified a potential Tesla successor but did not say who he was.

In court last week, Mr. Musk sought to highlight the conclusions that Tesla’s board of directors was an elite club of friends. When asked about his holidays with Mr Murdoch, he said his time off was focused less on leisure and more on getting work done, describing it as an “email with a point of view”.