Tesla Shareholders Reject Corporate-Governance Measures -- 2nd Update
June 11 2019 - 10:26PM
Dow Jones News
By Tim Higgins
Tesla Inc. failed to pass corporate governance changes at the
electric-car maker that its directors had proposed to give
stockholders a greater voice in company matters.
The board proposed the modifications in April, following a
string of changes implemented after Chief Executive Elon Musk was
accused by regulators of misleading investors with statements about
a plan to take the company private. As part of a settlement with
the government last year, Tesla named a new chairman and two new
directors. The board's recommendations aimed to shorten directors'
terms and lower the hurdle to pass corporate measures.
The proposal to narrow board members' tenure to two years from
three failed to get enough votes, as did the bid to change the
supermajority voting requirement to a simple majority, the company
said at its annual shareholder meeting Tuesday in Mountain View,
Calif.
While both measures received more than 99% approval from those
who voted, the proposals didn't get two-thirds approval from all
shares outstanding, Jonathan Chang, Tesla's top lawyer, said at the
meeting.
The Silicon Valley company, founded in 2003, has faced criticism
from shareholder groups that its board isn't independent enough
from Mr. Musk. While Tesla doesn't have a dual class of stock
similar to Facebook Inc. or Alphabet Inc. that provides Mr. Musk
controlling power over the auto maker, the supermajority vote
requirement effectively gives him a veto over shareholder
proposals.
Mr. Musk, who helped Tesla get going as its largest initial
investor before taking over as CEO in 2008, remains the largest
individual shareholder with about a 20% stake. His brother, Kimbal
Musk, is also a shareholder and member of the board.
Proxy adviser Glass Lewis & Co. recommended shareholders
vote in favor of the proposals, saying in a report that
supermajority vote requirements "act as impediments to takeover
proposals and impede shareholders' abilities to approve ballot
items that are in their interests. This, in turn, degrades share
value."
Mr. Musk's large stake in Tesla means that shareholders need not
merely get two-thirds of votes to pass a measure but 85% of shares
other than his holdings if he is against it, according to an
analysis by Gregory Shill, a law professor at the University of
Iowa who focuses on corporate governance. A Tesla spokeswoman
didn't respond to a question about whether Mr. Musk withheld his
vote on the failed measures.
Mr. Musk on Tuesday faced a friendly crowd of investors, some of
whom urged him to push back against negative media coverage.
The company has seen its shares plummet about 35% this year amid
concerns from investors that demand for Tesla's vehicles had
peaked.
"I want to be clear: there is not a demand problem," Mr. Musk
told the crowd. "Sales have far exceeded production." He added that
the company had a "shot" at a record second quarter.
He has reiterated that Tesla could deliver as many as 400,000
vehicles in 2019, which would imply record deliveries in the
remainder of the year after about 63,000 in the first quarter.
Tesla sold a total of about 245,000 globally in 2018, more than
double the number in 2017 when the company delivered about 103,000
cars and sport-utility vehicles.
Tesla has weathered increased criticism about its governance
since last summer, after Mr. Musk surprised investors with messages
on Twitter that he was considering taking the company private and
had funding secured to do so. Shares soared only to fall in the
following days as it became clear Mr. Musk's proposal wasn't
finalized.
He later faced allegations by the Securities and Exchange
Commission that he improperly misled investors with his tweets. He
settled with regulators last year, agreeing to pay a fine, step
down as chairman and accept oversight of his public statements.
As part of the settlement, Tesla named director Robyn Denholm,
then financial chief of Australian telecommunications company
Telstra Corp., as Tesla's new chairman and agreed to appoint two
new directors. Kathleen Wilson-Thompson, global head of human
resources for Walgreens Boots Alliance Inc., and Oracle Chairman
Larry Ellison were named to those new roles in December.
Earlier this year, the SEC sought to hold Mr. Musk in contempt
over allegations he violated their deal with tweets he made about
production. Regulators dropped their motion after coming to a
renewed oversight agreement with Mr. Musk.
Tesla said Tuesday that director Ira Ehrenpreis and Ms.
Wilson-Thompson were re-elected to the board. Brad Buss and Linda
Johnson Rice didn't seek re-election, narrowing the board to nine
members from 11.
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
June 11, 2019 22:11 ET (02:11 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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