Since Elon Musk took over Twitter last month, his leadership of the social network has been one of turmoil, intrigue and plenty of questions. Here’s one: How much time does he spend as CEO of electric carmaker Tesla?
Robyn Denholm, Tesla’s chairman, testified in court last week that while she didn’t know the answer, she wasn’t concerned. “The quantum of time is not a measure that concerns me,” she said. “It’s more the results that he can drive.”
But as Mr. Musk has consumed himself with Twitter, Tesla is facing a number of threats to its business, and its stock price has plummeted. Some corporate governance experts say Tesla’s board of directors needs to make sure the company has a boss who isn’t distracted.
“You’re violating your fiduciary responsibilities if you don’t address this issue head-on,” said William Klepper, a professor of management at Columbia Business School.
Tesla’s board has long been targeted by shareholder groups for its lack of independence from Mr. Musk. When Tesla’s stock price soared and the company seemed to have most of the electric car market to itself, that argument didn’t get much traction.
Now Tesla faces much tougher competition, particularly in China, a huge market for the company, and it’s still struggling with supply chain issues and verification of safety issues with its driver-assistance systems. The stock has fallen almost 60 percent since its peak a year ago; since Mr. Musk bought Twitter last month, the S&P 500 stock index is up 4.5 percent, but Tesla shares are down 25 percent. Mister. Musk has sold about $30 billion worth of Tesla stock this year and last, in part to fund his Twitter acquisition.
“I would expect a good board to do whatever it takes to ensure a CEO has enough focus on their company,” said Brianna Castro, senior director of US research at Glass Lewis, a shareholder advisory firm. “And in similar situations to Tesla, a good board would worry about why their stock is going down when the market is going up and do whatever it takes to address problems.”
Some corporate governance experts are concerned that board members’ views are being influenced by their personal ties to Mr. Musk. Mister. Musk’s brother Kimbal is a member, and other directors 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 that’s almost entirely invested in stocks and is several times higher than directors of other large companies, allowing some of them to amass fortunes over the years.
“When the pay is compelling enough to motivate the director to do whatever is reasonably possible to keep this gravy train going,” said Marc Goldstein, head of US research at ISS Governance, a shareholder advisory group. “Will that interfere with the director exercising independent oversight over the management team.” ISS has recommended voting against the re-election of certain Tesla directors.
Mister. Musk and Tesla did not respond to requests for comment.
Woman. Denholm’s testimony in the Delaware Court of Chancery last week stemmed from a salary deal Mr. Musk received in 2018 that ended up earning him tens of billions of dollars in Tesla stock. A shareholder filed a lawsuit alleging that the payout was excessive and that the board did not act with sufficient independence in approving it.
Mister. Musk was both chief executive and chairman of Tesla until he was forced to resign as chairman in 2018 as part of a settlement with the Securities and Exchange Commission to resolve securities fraud charges.
Woman. Denholm, a former telecoms executive who has taken the chair, made huge bucks as a director. Her compensation, which consisted almost entirely of stock options, was $5.8 million in 2020, well above the average salary for a director at a large public company.
A study by Steven Hall, a compensation consultant, showed that executive salaries in 2020 averaged just over $300,000 at large companies. At the high end, John L. Hennessy, the chairman of Alphabet, Google’s parent company, had $620,000 in compensation last year.
And Tesla’s securities filings show that since 2014, the company has paid Ms. Denholm Compensation, which is paid almost entirely in Tesla stock options and values the company at more than $30 million. As Tesla’s shares rose in value, she was able to sell her shares for substantial profits. She has sold $280 million worth of Tesla stock since 2020, according to securities documents. Woman. Denholm did not respond to requests for comment.
In the shareholder lawsuit, attorneys for the plaintiff, who wanted Mr. Musk’s 2018 salary agreement to be voided, wanted to show that Tesla’s board of directors was more like a private club than a committee of seasoned professionals dedicated to finding committed to shareholders. Tesla directors detailed their personal connections to Mr. Musk and sometimes to each other.
Some of them cited the sharp rise in the company’s stock price since 2019 as proof that Mr. Musk had done a great job and was invaluable to the automaker.
Ira Ehrenpreis, an investor who chairs Tesla’s compensation committee, has stood by Mr. Musk for years. According to court documents, he helped Mr. Musk draft the 2018 pay deal that, after Mr. Musk met 11 of 12 performance targets and paid out shares now worth about $40 billion at Tesla’s current share price.
In 2018, Tesla paid Mr. Speedwell nearly $10 million, almost entirely in stock options, to cover three years of his board tenure. 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 been with Mr Musk for more than 20 years and that the two had gone through “a lot of tough times” together brought them closer. He confirmed that he and Mr. Musk had vacationed together, stayed at each other’s homes, dined together and talked about their children. Mister. Gracias also admitted that it was Mr Musk’s second wedding and Kimbal Musk’s wedding and that he was with Mr Musk’s mother and sister. Mister. Gracias admitted he was with Mr Musk and described James Murdoch as “a great skier”.
Mister. Gracias said he was able to maintain his independence while working with Mr Musk because of their “trusting and respectful relationship.” Mister. Gracias did not respond to requests for comment on this article.
In court Mr. Murdoch said he met Elon Musk in the late 1990s when Mr. Musk was working at a digital advertising business. The two got back together after Mr Murdoch, who was then living in the UK, bought one of the first Tesla vehicles to be sold in Europe, and Mr Musk reached out to thank him. Mister. Murdoch said he was with Mr Musk and his family. He also admitted to attending Kimbal Musk’s wedding, dining with Kimbal Musk and his wife, and personally investing in SpaceX. Mister. Murdoch also said he bought shares in Tesla before joining its board.
Since joining the Board of Directors in 2017, Mr. Murdoch has received $11 million, mostly in stock options, for being a Tesla director and has an equity stake in the company of more than $200 million, according to estimates based on Tesla’s securities disclosures. Mister. Murdoch didn’t respond to requests for comment about his Tesla holdings and whether the board was doing enough to ensure Mr. Musk didn’t get distracted.
Mister. Murdoch testified in the Delaware court that an executive committee is monitoring the situation on Twitter, adding that Mr. Musk had identified a possible successor at Tesla for the past few months, but did not say who it was.
In court last week, Mr. Musk tried to downplay conclusions that Tesla’s board was an elite circle of friends. When asked about his holiday with Mr Murdoch, he said his free time was less about leisure and more about getting work done, describing it as “email with a view”.