SAN FRANCISCO — With Tesla in trouble, some investors think it’s time to shake up the board of directors.
Shareholders will vote Tuesday whether to dump three directors and replace Elon Musk as board chairman.
Few, if any, expect the votes to pass. In past years, shareholders have overwhelmingly supported the company against activists. And Musk owns 21.9 percent of Tesla voting shares.
Advocates expect the number of “dump” votes will be big enough to make waves and force Musk and Tesla to pay attention to investor concerns.
“I don’t know if anyone will be voted out of office,” said Kern McPherson, senior director of North American research at corporate governance advisory group Glass Lewis.
“But I think there’s a very good chance that Tesla will have to respond to elevated ‘vote against’ levels.”
Glass Lewis is advising shareholders to vote “no” for three Tesla board members up for re-election: 21st Century Fox Chief Executive James Murdoch; venture capitalist Antonio Gracias; and Musk’s younger brother, Kimbal.
The firm also backs a nonbinding resolution to appoint an independent board chairman to replace Musk, with Musk keeping his job as chief executive.
Tesla declined to comment or make board members available. Extensive company comments can be found in the proxy statement covering the issue.
The campaign to reform the board was spearheaded by CtW Investment Group, a specialist in managing union-sponsored pension funds. In a written argument to shareholders, CtW said Tesla’s “strategic and operational challenges” and “deteriorating financial performance” warrant a major change on the board of directors, and the board has been “unduly deferential” toward Musk.
The company’s financial position “has deteriorated along every dimension,” CtW said. Indeed, the company has posted only two profitable quarters in its 14-year history, and lately losses have deepened.
The concerns raised by CtW and shareholder advisers boil down to two main issues: whether the board’s independent directors are truly independent, and whether Murdoch and Chief Executive Musk are so busy with other matters that they can’t devote sufficient time and energy to Tesla at a crucial stage in the company’s history.
“It is important that the board of directors take steps to ensure that management remains focused on resolving the manufacturing challenges, and that the CEO and other executives do not get distracted by outside business interests or Twitter fights,” said shareholder adviser Institutional Shareholder Services in a report to clients.
Institutional Shareholder Services opposes re-election of Murdoch and Gracias but supports Kimbal Musk. The firm recommends a “yes” vote on removing Elon Musk as chairman. That proposal was put forth by shareholder activist Jing Zhao, who said, “I believe a big company cannot depend totally and so heavily on one person.”
Musk is a longtime tweeter, and his tweets have become more vituperative as he battles with critics over allegations about worker safety at his factory, the safety of his Autopilot software and other issues.
Add to that his launch or proposal of new businesses offering everything from flamethrowers to journalism ratings, and CtW accused the board of failing to contain Musk’s “peripatetic focus.” (Merriam-Webster defines peripatetic as someone who “journeys hither and thither.”)
Musk’s existing roles include chairman and chief executive at Tesla; chairman and chief executive of rocket-maker SpaceX; chief executive of Neuralink, a developer of brain-computer interfaces; and founder of Boring Co., a tunnel transportation company (which also sells the flamethrowers to raise money).
Supporters point out that the Musk mystique is a primary driver of investor enthusiasm and a big reason why Tesla’s stock market value is nearly $50 billion.