Since Elon Musk took over Twitter last month, his management of the social network has been marked by turmoil, intrigue and questions abound. Here’s one: How much time does he devote to his job as CEO of Tesla, the electric car maker?
Robyn Denholm, the president of Tesla, testified in court last week that while she didn’t know the answer, she was unperturbed. “Quantum of time is not a measure that concerns me,” she said. “It’s more the results he’s capable of driving.”
But as Mr Musk has become obsessed with Twitter, Tesla faces a series of threats to its business and its share price has plummeted. Some corporate governance experts say Tesla’s board needs to make sure the company has a leader who isn’t distracted.
“They’re violating their fiduciary responsibility if they don’t tackle this problem head-on,” said William Klepper, a management professor at Columbia Business School.
Tesla’s board has long been criticized by shareholder groups for its lack of independence from Mr Musk. When Tesla’s stock price was skyrocketing and the company seemed to have the electric car market mostly to itself, this argument found little resonance.
Today, Tesla faces much stiffer competition, particularly in China, a huge market for the company, and it’s still grappling with supply chain issues and scrutiny of safety issues with its driver assistance systems. Its stock has fallen nearly 60% from its peak a year ago; since Mr. Musk bought Twitter last month, the S&P 500 stock index has risen 4.5%, but shares of Tesla have fallen 25%. Mr. Musk has sold about $30 billion of Tesla stock this year and last, in part to help fund his acquisition of Twitter.
“I would expect a good board to do everything they can to make sure a CEO is focused enough on their business,” said Brianna Castro, senior director of US research at Glass Lewis, a shareholder advisory firm. “And in situations similar to Tesla’s, a good board would ask why its stock is down when the market is up, and do what it can to address the issues.”
Some corporate governance experts worry that the views of board members could be clouded by their personal relationships with Mr. Musk. Mr. Musk’s brother, Kimbal, is a member, and other administrators, such as James Murdoch, a media executive and son of Rupert Murdoch, are longtime friends of Mr. Musk. Some Tesla board members have financial ties to Mr. Musk’s other businesses, such as SpaceX, the rocket company.
Another factor: Tesla directors receive compensation, almost entirely in shares, which is far greater than that received by directors of other large companies, allowing some of them to amass fortunes over the years.
“If the salary is so compelling that the director is going to be motivated to do everything reasonably possible to keep this sauce going,” said Marc Goldstein, head of US research at ISS Governance, a shareholder advisory group, “this will interfere with the director exercising independent control over the management team. ISS recommended voting against the re-election of some Tesla directors.
Mr. Musk and Tesla did not respond to requests for comment.
Ms. Denholm’s testimony in the Delaware Court of Chancery last week concerned a pay deal Mr. Musk received in 2018 that ended up awarding him tens of billions of dollars worth of Tesla stock. A shareholder filed a lawsuit claiming the payment was excessive and that the board failed to act with sufficient independence when approving it.
Mr Musk was both chief executive and chairman of Tesla until he was forced to resign as chairman as part of a settlement with the Securities and Exchange Commission in 2018 to resolve fraud charges in securities.
Ms. Denholm, a former telecommunications executive who assumed the presidency, has made huge sums as director. His compensation, made up almost entirely of stock options, was $5.8 million in 2020, well above the average salary of a director of a large public company.
A study by Steven Hall, a compensation consultant, showed that director compensation averaged just over $300,000 at large companies in 2020. At the high end, John L. Hennessy, chairman of Alphabet, the parent company of Google, had a compensation of $620,000 last year. .
And Tesla securities filings show that since 2014 the company has awarded Ms Denholm compensation, paid almost entirely in Tesla stock options, which the company valued at more than $30 million. As Tesla’s stock value rose, it was able to sell its shares for significant gains. Since 2020, she has sold $280 million worth of Tesla stock, according to securities filings. Ms. Denholm did not respond to requests for comment.
In the shareholder lawsuit trial, plaintiff’s attorneys, who want Mr. Musk’s 2018 compensation deal overturned, sought to show that Tesla’s board was more like a private club than to a committee of seasoned professionals dedicated to the search for shareholders. Tesla directors have detailed their personal ties to Mr. Musk and sometimes to each other.
Some of them pointed to the sharp rise in the company’s share price since 2019 as proof that Mr. Musk had done a tremendous job and was invaluable to the automaker.
Ira Ehrenpreis, an investor who heads Tesla’s compensation committee, has been close to Mr. Musk for years. He helped Mr. Musk design the 2018 compensation deal, which after Mr. Musk hit 11 of 12 performance goals, paid out shares worth about $40 billion, according to court documents. dollars to Tesla’s current stock price.
In 2018, Tesla paid Mr. Ehrenpreis nearly $10 million, almost all of it in stock options, to cover three years for his duties on the board. He did not respond to requests for comment.
Antonio Gracias, an investor who was on Tesla’s board of directors until last year, admitted in court that he had known Mr. Musk for more than 20 years and that the two had endured “a lot of moments difficult” together, bringing them closer together. He acknowledged that he and Mr. Musk vacationed together, went to 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 was friends with Mr. Musk’s mother and sister. Mr Gracias acknowledged he had been on ski trips with Mr Musk and described James Murdoch as ‘a great skier’.
Mr Gracias said he was able to maintain his independence while on holiday with Mr Musk because of their “trusting and respectful relationship”. 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 worked at a digital advertising company. The two reconnected after Mr Murdoch, then living in Britain, bought one of the first Tesla vehicles sold in Europe and Mr Musk thanked him. Mr. Murdoch said he had traveled to Jerusalem and Mexico with Mr. Musk and his family. He also admitted to attending Kimbal Musk’s wedding, having dinner with Kimbal Musk and his wife, and personally investing in SpaceX. Mr 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 the form of stock options, to serve as a Tesla director and has a stake in the company. worth more than $200 million, according to estimates based on Tesla securities disclosures. Mr Murdoch did not respond to requests for comment on his Tesla holdings and whether the board was doing enough to ensure Mr Musk was not distracted.
Mr Murdoch testified in court in Delaware that a board committee was monitoring the situation on Twitter, adding that Mr Musk had in recent months identified a potential successor at Tesla but did not specify who he was. acted.
In court last week, Mr Musk sought to shed light on inferences that Tesla’s board was an elite club of friends. Asked about his holiday with Mr Murdoch, he said his free time was less about hobbies and more about getting work done, describing it as “email with a view”.
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