Experts say Tesla board may have too many ties to CEO Musk

By Ken Sweet And Tom Krisher Ap Business Writers
Tuesday, August 21, 2018

For years, Tesla’s board remained almost invisible, staying behind the curtain as superstar Chairman and CEO Elon Musk guided the electric car maker to huge stock price increases. Now, given Musk’s recent questionable behavior, experts say it’s time for the board to step onstage and take action on the company’s leadership.

The list of Musk’s offenses include berating Wall Street analysts on a conference call and labeling as a pedophile via Twitter a British diver involved in the cave rescue of trapped Thai soccer players.

Add to that his abrupt Twitter announcement of a plan to take the company private even though funding hasn’t been solidified, as well as confessing to being overwhelmed with job stress in a recent interview, and it’s likely that most other company boards in a similar position would have taken action, corporate governance experts say. Yet Tesla’s nine-member board, which includes Musk and his brother, Kimbal, has largely been silent, save for forming a three-member committee to decide on the go-private plan that has already drawn scrutiny from U.S. securities regulators.

At least five of the company’s eight non-executive directors have strong ties to Musk or one of his other companies, throwing their independence into question.

“I believe Elon Musk is a genius and he needs to be admired and encouraged, but this board of directors has to do more management oversight of the company. The board of directors is not meant to be a cheering committee,” said William Klepper, a professor at Columbia Business School and an expert on corporate governance issues.

Kimbal Musk is among the five directors with ties to Musk. Lead director Antonio Gracias founded a private equity firm and also is a director of SpaceX, Musk’s privately held rocket company. Director Steve Jurvetson is also a SpaceX director. He’s been on leave from his venture capital firm since allegations of sexual misconduct appeared last year. Another director, venture capitalist Ira Ehrenpreis, is also a SpaceX investor, while director Brad Buss is a former chief financial officer of SolarCity, a solar panel maker that Tesla acquired in 2016.

Australian telecommunications company executive Robyn Denholm was the only other Tesla director until last year, when two were added after investors complained about a lack of independence. James Murdoch, the CEO of 21st Century Fox, and Linda Johnson Rice, the chairman and CEO of Johnson Publishing Co., joined the board in July of 2017.

In a 2017 letter seeking two more board members, five investors wrote that five Tesla directors “have professional or personal ties to Mr. Musk that could put at risk their ability to exercise independent judgment.”

One of the five, New York City Comptroller Scott Stringer, who manages investments in Tesla, said in a statement Monday that it’s time for the board “to take a hard look at Tesla’s governance and compensation structures to ensure that there are proper processes in place for strong board independence and oversight.”

Columbia’s Klepper said Tesla didn’t need more board members; it needed assertive ones. “They need to make some hard choices about the existing board members and decide whether their expertise really fits with Tesla’s mission,” Klepper said.

Two major firms that specialize in corporate governance issues advised Tesla shareholders to shake up the company’s board earlier this year, citing troubling conflicts of interest and decisions that raised questions about the directors’ links with Musk. Shareholders wound up rejecting the recommendations of Institutional Shareholder Services and Glass Lewis & Co. at Tesla’s annual meeting in June and re-elected all three directors — Gracias, Murdoch and Kimbal Musk — whose terms were expiring.

Glass Lewis recommended voting against the three; ISS opposed the re-elections of Gracias and Murdoch, but concluded there was no reason to oust Kimbal Musk because he doesn’t serve on any board committees requiring independence from his brother.

Tesla wouldn’t comment about its directors, and members reached Monday did not return messages. But the company pointed to its proxy statement that said seven of nine members are considered independent based on standards set by the Nasdaq stock market, on which Tesla stock trades.