Oversight of Elon Musk remains key challenge

By Rolfe Winkler and Tim Higgins 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 29, 2018).

Tesla Inc. named a pair of new independent directors -- including Oracle Corp. Chairman and tech-industry luminary Larry Ellison -- to a board that has been under fire for its oversight of Chief Executive Elon Musk.

Tesla said Mr. Ellison, who has been a public booster of the electric-car maker, and Kathleen Wilson-Thompson, the global head of human resources for Walgreens Boots Alliance Inc., joined its board on Thursday.

Their addition fulfills the terms of Tesla's September agreement with the Securities and Exchange Commission to settle claims that Mr. Musk misled investors when he claimed this year to have funding to take the Silicon Valley auto maker private.

The additions bring to 10 the number of active directors on Tesla's board, which last year added two other outsiders to a group stacked with longtime Musk allies. An 11th director has been on leave since last year.

The naming of Mr. Ellison and Ms. Wilson-Thompson follows the elevation to chairman in November of Robyn Denholm, a veteran finance executive who joined Tesla's board four years ago. The replacement of Mr. Musk as chairman fulfilled another requirement of the regulatory settlement.

Mr. Ellison, who co-founded enterprise software giant Oracle in 1977 and is one of the best-known executives in Silicon Valley, has expressed support for Mr. Musk, disclosing in October that Tesla was his second-largest personal investment. "I'm very close friends with Elon Musk, and I'm a big investor in Tesla," Mr. Ellison said at an Oracle analysts' conference in which he lashed out at critics of the Tesla chief's management.

Tesla said on Friday that Mr. Ellison had purchased 3 million shares in Tesla earlier this year. That translates to about $1 billion at the stock's current price.

Ms. Wilson-Thompson was a 17-year veteran of Kellogg Co. before joining Walgreens in 2010. She serves on two other boards, at construction materials company Vulcan Materials Co. and specialty-chemicals supplier Ashland Global Holdings Inc.

"Larry Ellison is a business icon, but smart investors will probably ask a handful of questions," said Adam Epstein, head of corporate-governance consultants Third Creek Advisors, including "If this is yet another 'friend' of Elon's how does that help me as an investor?" Mr. Epstein also questioned whether Mr. Ellison, who is also Oracle's chief technology officer, has the time to devote to his duties as a Tesla director.

Tesla's board said it had conducted a widespread search. "In Larry and Kathleen, we have added a pre-eminent entrepreneur and a human resources leader, both of whom have a passion for sustainable energy," the board said Friday.

Shareholders and activist groups have complained that Tesla's board lacks the independence to properly supervise Mr. Musk, whose success in building the company into a major producer of electric vehicles has been matched by his ability to stir controversy with sometimes outlandish statements. Critics also point to Mr. Musk's history of making public forecasts for financial and operational performance that Tesla has failed to meet.

The September settlement resolved SEC claims that Mr. Musk deceived investors on Aug. 7 when he tweeted that he was considering taking Tesla private at $420 a share and had secured funding for the deal. Shares soared on the news only to plummet in the ensuing days when it became clear that a deal wasn't close to final. The SEC alleged that Mr. Musk didn't have funding secured, while he said he believed he did.

In addition to the board changes, the settlement also called for Tesla to add oversight of Mr. Musk's communications that are potentially material to the company's share price.

Tesla's stock rose 6% to $333.87 Friday, but is still down about 14% from its August peak.

Last month, a group of Tesla shareholders including state investment officials from New York, Connecticut, Oregon and California called on the board to make sweeping changes to its governance to enhance oversight of Mr. Musk.

Tesla's board includes Mr. Musk and his brother, Kimbal, as well as Brad Buss, former finance chief at SolarCity, a company Mr. Musk led and that Tesla acquired in 2016, and Antonio Gracias and Ira Ehrenpreis, investors who also have backed SpaceX, Mr. Musk's rocket company. Another investor with close ties to Mr. Musk, Steve Jurvetson, has been on leave from Tesla's board since late 2017.

Tesla responded in July 2017 to criticism about the board's lack of independence by naming media executives James Murdoch and Linda Johnson Rice as directors. Mr. Murdoch is on the board of News Corp, parent company of The Wall Street Journal.

One challenge for the board is how tightly Tesla's reputation is intertwined with Mr. Musk's. He also is the largest single shareholder, and analysts question whether the company would struggle to raise new capital if he were ever to leave the board.

Tesla over the past two years has struggled to realize Mr. Musk's vision for a mainstream electric car. The Model 3 has been praised by reviewers but was harder to manufacture than Mr. Musk expected, leading to delays. Tesla reached the goal of making 5,000 Model 3s in a single week at the end of the second quarter and turned a profit in the third quarter but still isn't offering a promised version of the Model 3 that starts at $35,000.

The appointment of Ms. Wilson-Thompson also brings Tesla into line with a recently enacted California law that requires public companies located in the state to have at least three female directors if their boards have six or more members.

Write to Rolfe Winkler at rolfe.winkler@wsj.com and Tim Higgins at Tim.Higgins@WSJ.com

 

(END) Dow Jones Newswires

December 29, 2018 02:47 ET (07:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Tesla Charts.
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Tesla Charts.