Tesla’s Submissive Board Would possibly Be As Large A Chance As An Erratic CEO

Inside the SXSW Interactive Conference

<figcaption><fbs-accordion><p class="color-body light-text">Inside the SXSW Interactive Conference<small>BLOOMBERG NEWS</small></p></fbs-accordion></figcaption></figure><p>With Tesla closer to transitioning from niche electric-car company to high-volume manufacturer than it’s ever been, discipline and focus have never been needed more. And with its ever-expanding need for funds and billions of dollars of shareholder equity on the line, you’d think turmoil sparked by CEO Elon Musk’s erratic public comments would have set off an ear-splitting alarm for its board. </p><p>You’d be wrong.</p><p>After his half-baked plan to take the company private collapsed last month, six of Tesla’s nine <a href="http://ir.tesla.com/news-releases/news-release-details/statement-independent-members-teslas-board-directors-brad-buss" target="_blank" class="color-accent">directors said</a> “we fully support Elon as he continues to lead the company moving forward,” despite the fact that his tweets about privatization sparked shareholder litigation and an SEC inquiry. (Musk and brother <a href="http://ir.tesla.com/board-directors/kimbal-musk" target="_blank" class="color-accent">Kimbal</a>, who are board members, recused themselves from consideration of the plan.) </p><p>That occurred as he <a href="https://www.nytimes.com/2018/08/16/business/elon-musk-interview-tesla.html?hp&amp;action=click&amp;pgtype=Homepage&amp;clickSource=story-heading&amp;module=first-column-region&amp;region=top-news&amp;WT.nav=top-news" target="_blank" class="color-accent">talked of 120-hour workweeks</a>, camping out in Tesla’s Fremont, California, plant during its push to boost Model 3 output and <a href="https://www.forbes.com/sites/alanohnsman/2018/08/17/elon-musk-may-not-be-working-all-the-hours-he-claims-but-boy-he-needs-sleep/#5a2e361470b2" target="_blank" class="color-accent">sleeping little</a>. He’s said in tweets that he <a href="https://www.forbes.com/sites/alanohnsman/2017/07/31/amid-his-most-important-tesla-milestone-elon-musk-says-he-may-be-bipolar/#1a981b1171f4" target="_blank" class="color-accent">might be bipolar</a>, made <a href="https://money.cnn.com/2018/08/29/news/elon-musk-libel-lawsuit-vern-unsworth/index.html" target="_blank" class="color-accent">potentially libelous</a> comments about a British man who aided the rescue of Thai youths, had an earnings call freakout in which he chatted with a fan instead of taking analysts’ questions and smoked marijuana during a podcast. <a href="https://in.reuters.com/article/tesla-executives/factbox-tesla-executive-departures-since-2016-idINKCN1LT2QQ" target="_blank" class="color-accent">Turnover among high-level engineering and finance executives</a> is also a concern, yet through it all, the board has remained silent. </p><blockquote class="quote-embed embed-2 bg-accent color-base font-accent"><p>“Enron while it was collapsing did not have turnover as high as this company does"</p><footer>Jeffrey Sonnenfeld, Yales School of Management</footer></blockquote><p>“The board is completely negligent here,” <a href="https://som.yale.edu/faculty/jeffrey-sonnenfeld" target="_blank" class="color-accent">Jeffrey Sonnenfeld</a> of the Yale School of Management told <em>Forbes</em>. “Enron&nbsp;while it was collapsing&nbsp;did not have turnover as high as this company does. If you go back 18 months it’s 50 significant people that have left. … Where is the board in terms of looking at exit interviews and what’s being said by those leaving, at this unparalleled level of instability?”</p><p>Musk has been an audacious figure with a flare for spectacle ever since Tesla unveiled the speedy electric Roadster at the Santa Monica Airport in July 2006, with celebrity guests including then-California Governor Arnold Schwarzenegger in attendance. The company survived near collapse in 2008 and rebounded with a successful IPO in 2010. But it was the Model S sedan launch in 2012, combined with Musk’s world-changing ambitions, that turned him into a hero for many Tesla customers and shareholders. He’s never shown much restraint in public comments, but that habit escalated to an entirely new level this year.</p><p>"Sure he’s a creative genius. His role model Nikola Tesla was too and guess what? Nikola Tesla was also unable to handle scale," Sonnenfeld said. </p><p>His advice? Tesla needs a disciplined executive like former Ford CEO Mark Fields, someone who knows how to run complex industrial enterprises, but also understands changing technology and markets. </p><p>Musk could better serve Tesla as "some sort of chief creative officer and perhaps vice chairman or a non-executive chairman," Sonnenfeld said. </p><p>"He’s not at the stage of life where he’s fit to be CEO. At best, he’s still operating the way a startup operates. But he’s not a startup anymore."&nbsp;</p><p>Early-stage tech companies typically have friendly boards loaded with VC types. But as they mature and expand, their need for strong-willed, independent board members does too. Eight years after its IPO two-thirds of Tesla’s nine-member board appear to be rock-solid Musk allies. And judging by the lucrative <a href="http://ir.tesla.com/static-files/df585ace-399b-463f-af11-e838e6f63120" target="_blank" class="color-accent">10-year compensation package</a> Tesla’s board approved for Musk in March the could potentially be worth tens of billions of dollars to the <a href="https://www.forbes.com/profile/elon-musk/#643808007999" target="_blank" class="color-accent">billionaire entrepreneur</a>, it’s decided he’s irreplaceable. </p><p>Fidelity and T. Rowe Price, two of Tesla’s largest institutional shareholders, declined to comment on its corporate governance, but investors including <a href="https://www.calstrs.com/" target="_blank" class="color-accent">CalSTRS</a>, which manages pensions on behalf of California teachers, and CtW Investments are blunt in their desire for a more independent and active board.</p><figure class="image-embed embed-4 alignright">

Kimbal Musk at the Milken Conference (Patrick T. Fallon/Bloomberg )

<figcaption><fbs-accordion><p class="color-body light-text">Kimbal Musk at the Milken Conference (Patrick T. Fallon/Bloomberg )<small>© 2016 Bloomberg Finance LP</small></p></fbs-accordion></figcaption></figure><p>“The board needs to start ensuring he is running the company for the benefit of all shareholders,” said portfolio manager Aeisha Mastagni, who monitors corporate governance for companies CalSTRS invests in. “Unfortunately, this board is not sufficiently independent to properly oversee Elon; the board is ripe with conflicts, including Elon’s brother Kimbal Musk who didn’t take his role as a board member seriously enough to attend at least 75% of the meetings.”</p><p>CtW, which manages pension funds for unions, has been among the biggest advocates for a new Tesla board, though its latest effort to do so was roundly voted down at the annual shareholder meeting in June. “Most of the board members are long-time friends and business partners and there’s his brother,” said Dieter Waizenegger,&nbsp;CtW’s&nbsp;executive director. </p><p>Those allies include investor and pal <a href="http://ir.tesla.com/board-directors/steve-jurvetson" target="_blank" class="color-accent"><strong>Steve Jurvetson</strong></a>, co-founder of Draper Fisher Jurvetson. However, he’s been on leave from the board since November 2017, when he also left his former venture capital firm due to a sexual harassment investigation. There’s no indication whether his Tesla seat will be given to someone else. </p><p>“The fact that we have this vacancy on the board, it just shows that the board hasn’t made a decision on what to do about that either,” Waizenegger said.&nbsp;</p><p>Take a look at the rest of the supposedly “independent” board: </p><p><a href="http://ir.tesla.com/board-directors/ira-ehrenpreis" target="_blank" class="color-accent"><strong>Ira Ehrenpreis</strong></a>, founder and managing partner of Silicon Valley venture capital firm DBL Partners, is a long-time Musk friend and Tesla and SpaceX investor. He joined Tesla’s board in 2007. Last year, Ehrenpreis passed up an opportunity to take the first Model 3 Tesla produced, giving it instead to Musk as a&nbsp;<a href="https://twitter.com/elonmusk/status/883848060119527424" target="_blank" class="color-accent">46th birthday present</a>. </p><figure class="image-embed embed-7 alignright">

Antonio Gracias

<figcaption><fbs-accordion><p class="color-body light-text">Antonio Gracias<small>Valor Equity Partners</small></p></fbs-accordion></figcaption></figure><p><a href="http://ir.tesla.com/board-directors/antonio-gracias" target="_blank" class="color-accent"><strong>Antonio Gracias</strong></a>, the “lead independent” board member, is another long-time friend who’s backed Musk since his PayPal days through his firm Valor Equity Partners. He was given the second Tesla Roadster ever produced as a gift in 2008. He’s also been targeted by activist investors who want him off the board because of those close ties.</p><p><a href="http://ir.tesla.com/board-directors/brad-w-buss" target="_blank" class="color-accent"><strong>Brad Buss</strong></a>, former SolarCity CFO. He joined the board in early 2017 as an independent director. But his independence is questionable given that Musk was SolarCity’s biggest investor and chairman, and the company was run by two of his cousins. Buss got his board seat after Tesla’s controversial acquisition of the solar power company that Musk had advocated. &nbsp;</p><p><a href="http://ir.tesla.com/board-directors/robyn-denholm" target="_blank" class="color-accent"><strong>Robyn Denholm</strong></a>, COO of Australia’s Telstra Corp, has been associated with Musk companies since 2014, when she joined SolarCity’s board as an independent member. Like Buss, she moved to Tesla’s board when it acquired SolarCity in 2017.</p><figure class="image-embed embed-5 alignright">

Universal Music Group and Ebony Honor Sen. Kamala D. Harris during 2017 CBCF ALC

<figcaption><fbs-accordion><p class="color-body light-text">Universal Music Group and Ebony Honor Sen. Kamala D. Harris during 2017 CBCF ALC<small>Kris Connor/Invision/AP</small></p></fbs-accordion></figcaption></figure><p><a href="http://ir.tesla.com/board-directors/linda-johnson-rice" target="_blank" class="color-accent"><strong>Linda Johnson Rice</strong></a>, chairman of Chicago-based Johnson Publishing Co., which produces Ebony and Jet magazines, is one of the first non-Silicon Valley or tech industry people to serve on Tesla’s board and is its first African-American member. The appointment of Rice and 21st Century Fox CEO <a href="http://ir.tesla.com/board-directors/james-murdoch" target="_blank" class="color-accent"><strong>James Murdoch</strong></a> in 2017 coincided with efforts by activist shareholders for more board diversity and members with no previous business connections to Musk. </p><p>Over the years, shareholders have sued Musk and Tesla repeatedly for a number of issues. Most recently that includes investors shorting the stock who believe privatization Musk’s tweets were an attempt to manipulate the share price. For the most part, with the exception of a <a href="https://www.reuters.com/article/us-tesla-shareholders/tesla-shareholder-lawsuit-against-solarcity-deal-set-to-proceed-idUSKBN1H43A3" target="_blank" class="color-accent">suit filed over the acquisition of SolarCity</a>, legal actions haven’t been directed at Tesla’s board. But that could change.</p><blockquote class="quote-embed embed-6 bg-accent color-base font-accent"><p>“A shareholder could bring a derivative action that basically says the board is not exercising its duty of care” </p><footer>Lawyer Peter Haveles, Pepper Hamilton LLP</footer></blockquote><figure class="image-embed embed-8 alignright">

21st Century Fox CEO James Murdoch.

<figcaption><fbs-accordion><p class="color-body light-text">21st Century Fox CEO James Murdoch.<small>2017 Getty Images</small></p></fbs-accordion></figcaption></figure><p>“A shareholder could bring a derivative action that basically says the board is not exercising its duty of care, seek damages resulting from that and seek changes in corporate governance,” said lawyer Peter Haveles, a partner&nbsp;at Pepper Hamilton LLP, which doesn’t have any active litigation against Tesla. </p><p>“That’s a hard road. It’s not an easy one to get,” at least not for now, he said.</p><p>“Let’s say the company gets in a situation because of this whole embarrassment where come January they can’t refinance their debt and it’s an unmitigated disaster. You’re more likely to see derivative actions happen at that time."</p><p>Sonnenfeld, who has studied corporate management for decades and even knew Steve Jobs, a Musk hero who had his own management challenges, doesn’t expect the board to really change until that happens.</p><p>“They have to feel some personal jeopardy,” he said. “They are violating a duty of care. They have a reckless disregard for facts and for operational, financial and communications failures.”</p>”>

Throughout the SXSW Interactive ConventionBLOOMBERG NEWS

With Tesla nearer to transitioning from area of interest electric-car corporate to high-volume producer than it’s ever been, self-discipline and focal point have by no means been wanted extra. And with its ever-expanding want for budget and billions of bucks of shareholder fairness at the line, you’d suppose turmoil sparked by way of CEO Elon Musk’s erratic public feedback would have spark off an ear-splitting alarm for its board.

You’d be incorrect.

After his half-baked plan to take the corporate personal collapsed closing month, six of Tesla’s 9 administrators mentioned “we absolutely reinforce Elon as he continues to guide the corporate shifting ahead,” even if his tweets about privatization sparked shareholder litigation and an SEC inquiry. (Musk and brother Kimbal, who’re board contributors, recused themselves from attention of the plan.)

That passed off as he talked of 120-hour workweeks, tenting out in Tesla’s Fremont, California, plant throughout its push to spice up Fashion three output and napping little. He’s mentioned in tweets that he may well be bipolar, made doubtlessly libelous feedback a few British guy who aided the rescue of Thai youths, had an profits name freakout wherein he chatted with a fan as a substitute of taking analysts’ questions and smoked marijuana throughout a podcast. Turnover amongst high-level engineering and finance executives may be a priority, but via all of it, the board has remained silent.

“Enron whilst it was once collapsing didn’t have turnover as excessive as this corporate does”

Jeffrey Sonnenfeld, Yales College of Control

“The board is totally negligent right here,” Jeffrey Sonnenfeld of the Yale College of Control instructed Forbes. “Enron whilst it was once collapsing didn’t have turnover as excessive as this corporate does. In the event you return 18 months it is 50 important other people that experience left. … The place is the board with regards to having a look at go out interviews and what’s being mentioned by way of the ones leaving, at this remarkable point of instability?”

Musk has been an audacious determine with a flare for spectacle ever since Tesla unveiled the fast electrical Roadster on the Santa Monica Airport in July 2006, with superstar visitors together with then-California Governor Arnold Schwarzenegger in attendance. The corporate survived close to cave in in 2008 and rebounded with a a hit IPO in 2010. But it surely was once the Fashion S sedan release in 2012, blended with Musk’s world-changing ambitions, that grew to become him right into a hero for plenty of Tesla consumers and shareholders. He is by no means proven a lot restraint in public feedback, however that dependancy escalated to a completely new point this 12 months.

“Positive he is an artistic genius. His position type Nikola Tesla was once too and bet what? Nikola Tesla was once additionally not able to care for scale,” Sonnenfeld mentioned.

His recommendation? Tesla wishes a disciplined government like former Ford CEO Mark Fields, any person who is aware of the right way to run complicated commercial enterprises, but in addition understands replacing era and markets.

Musk may higher serve Tesla as “some kind of leader ingenious officer and most likely vp or a non-executive chairman,” Sonnenfeld mentioned.

“He isn’t on the degree of existence the place he is are compatible to be CEO. At best possible, he is nonetheless running the way in which a startup operates. However he is not a startup anymore.” 

Early-stage tech firms generally have pleasant forums loaded with VC sorts. However as they mature and extend, their want for strong-willed, impartial board contributors does too. 8 years after its IPO two-thirds of Tesla’s nine-member board seem to be rock-solid Musk allies. And judging by way of the profitable 10-year repayment package deal Tesla’s board licensed for Musk in March the may doubtlessly be price tens of billions of bucks to the billionaire entrepreneur, it’s made up our minds he’s irreplaceable.

Constancy and T. Rowe Worth, two of Tesla’s greatest institutional shareholders, declined to touch upon its company governance, however traders together with CalSTRS, which manages pensions on behalf of California lecturers, and CtW Investments are blunt of their want for a extra impartial and energetic board.

Kimbal Musk at the Milken Conference (Patrick T. Fallon/Bloomberg )

Kimbal Musk on the Milken Convention (Patrick T. Fallon/Bloomberg )© 2016 Bloomberg Finance LP

“The board wishes to begin making sure he’s operating the corporate for the good thing about all shareholders,” mentioned portfolio supervisor Aeisha Mastagni, who screens company governance for firms CalSTRS invests in. “Sadly, this board isn’t sufficiently impartial to correctly oversee Elon; the board is ripe with conflicts, together with Elon’s brother Kimbal Musk who didn’t take his position as a board member significantly sufficient to wait no less than 75% of the conferences.”

CtW, which manages pension budget for unions, has been a number of the greatest advocates for a brand new Tesla board, although its newest effort to take action was once roundly voted down at the yearly shareholder assembly in June. “Lots of the board contributors are long-time buddies and trade companions and there’s his brother,” mentioned Dieter Waizenegger, CtW’s government director.

The ones allies come with investor and good friend Steve Jurvetson, co-founder of Draper Fisher Jurvetson. Then again, he is been on depart from the board since November 2017, when he additionally left his former undertaking capital company because of a sexual harassment investigation. There’s no indication whether or not his Tesla seat shall be given to any person else.

“The truth that we’ve got this emptiness at the board, it simply presentations that the board hasn’t decided on what to do about that both,” Waizenegger mentioned. 

Check out the remainder of the supposedly “impartial” board:

Ira Ehrenpreis, founder and managing spouse of Silicon Valley undertaking capital company DBL Companions, is a long-time Musk buddy and Tesla and SpaceX investor. He joined Tesla’s board in 2007. Final 12 months, Ehrenpreis handed up a chance to take the primary Fashion three Tesla produced, giving it as a substitute to Musk as a 46th birthday provide.

Antonio Gracias

Antonio GraciasValor Fairness Companions

Antonio Gracias, the “lead impartial” board member, is every other long-time buddy who’s subsidized Musk since his PayPal days via his company Valor Fairness Companions. He was once given the second one Tesla Roadster ever produced as a present in 2008. He is additionally been focused by way of activist traders who need him off the board on account of the ones shut ties.

Brad Buss, former SolarCity CFO. He joined the board in early 2017 as an impartial director. However his independence is questionable for the reason that Musk was once SolarCity’s greatest investor and chairman, and the corporate was once run by way of two of his cousins. Buss were given his board seat after Tesla’s debatable acquisition of the solar energy corporate that Musk had advocated.  

Robyn Denholm, COO of Australia’s Telstra Corp, has been related to Musk firms since 2014, when she joined SolarCity’s board as an impartial member. Like Buss, she moved to Tesla’s board when it received SolarCity in 2017.

Universal Music Group and Ebony Honor Sen. Kamala D. Harris during 2017 CBCF ALC

Common Song Staff and Ebony Honor Sen. Kamala D. Harris throughout 2017 CBCF ALCKris Connor/Invision/AP

Linda Johnson Rice, chairman of Chicago-based Johnson Publishing Co., which produces Ebony and Jet magazines, is likely one of the first non-Silicon Valley or tech trade other people to serve on Tesla’s board and is its first African-American member. The appointment of Rice and 21st Century Fox CEO James Murdoch in 2017 coincided with efforts by way of activist shareholders for extra board variety and contributors with out a earlier trade connections to Musk.

Over time, shareholders have sued Musk and Tesla time and again for quite a lot of problems. Maximum not too long ago that comes with traders shorting the inventory who consider privatization Musk’s tweets have been an try to manipulate the proportion value. For probably the most section, apart from a go well with filed over the purchase of SolarCity, felony movements have not been directed at Tesla’s board. However that would exchange.

“A shareholder may convey a spinoff motion that mainly says the board isn’t exercising its responsibility of care”

Legal professional Peter Haveles, Pepper Hamilton LLP
21st Century Fox CEO James Murdoch.

21st Century Fox CEO James Murdoch.2017 Getty Pictures

“A shareholder may convey a spinoff motion that mainly says the board isn’t exercising its responsibility of care, search damages on account of that and search adjustments in company governance,” mentioned legal professional Peter Haveles, a spouse at Pepper Hamilton LLP, which doesn’t have any energetic litigation towards Tesla.

“That is a troublesome street. It is not a very simple one to get,” no less than now not for now, he mentioned.

“Shall we say the corporate will get in a state of affairs on account of this entire embarrassment the place come January they may be able to’t refinance their debt and it is an unmitigated crisis. You might be much more likely to look spinoff movements occur at the moment.”

Sonnenfeld, who has studied company control for many years or even knew Steve Jobs, a Musk hero who had his personal control demanding situations, doesn’t be expecting the board to actually exchange till that occurs.

“They’ve to really feel some non-public jeopardy,” he mentioned. “They’re violating an obligation of care. They’ve a reckless forget for details and for operational, monetary and communications screw ups.”

http://platform.twitter.com/widgets.js

Supply hyperlink

Spread the love

Leave a Reply

Your email address will not be published. Required fields are marked *