Since Elon Musk took over Twitter last month, his management of the social network has been marked by turmoil, intrigue and no shortage of questions. Here’s one: How much time does he spend at his job as CEO of electric car maker Tesla?
Robyn Denholm, Tesla’s chairman, testified in court last week that while she didn’t know the answer, she wasn’t upset. “The quantum of time is not a measure of concern to me,” she said. “It’s more the results he can drive.”
But as Mr. Musk has become preoccupied with Twitter, Tesla faces a series of threats to his company, and his share price is plummeting. Some corporate governance experts say Tesla’s board should ensure that the company has a chief who is not distracted.
“They’re violating their fiduciary responsibility if they don’t address that issue directly,” said William Klepper, a professor of management at Columbia Business School.
Tesla’s board has long been criticized by shareholder groups for not being independent of Mr. Musk. When Tesla’s share price soared and the company seemed to have the electric car market largely to itself, that argument found little traction.
Now Tesla faces much stiffer competition, especially in China, a huge market for the company, and continues to struggle with supply chain issues and scrutiny over safety issues with its driver assistance systems. The stock has plummeted nearly 60 percent from its peak a year ago; since Mr. Musk bought Twitter last month, the S&P 500 stock index is up 5 percent, but Tesla shares are down 25 percent. Mr. Musk sold about $30 billion worth of Tesla stock this year and last year, in part to help fund his takeover of Twitter.
“I would expect good governance to do everything it can to ensure that a CEO is sufficiently focused on his business,” said Brianna Castro, senior director of US research at Glass Lewis, a shareholder advisory firm. “And in situations similar to Tesla’s, good governance would worry about why their stock is falling while the market is rising, and do what they can to address any issues.”
Some corporate governance experts worry that board members’ opinions are being clouded by their personal relationship with Mr. Musk. Mr. Musk’s brother, Kimbal, is a member, and other executives, such as James Murdoch, a media executive and son of Rupert Murdoch, are old friends of Mr. Musk’s. Some Tesla board members have financial ties to Mr. Musk’s other companies, such as SpaceX, the rocket company.
Another factor: Tesla’s drivers receive compensation, almost entirely in stock, that is many times greater than what drivers get at other large companies, allowing some of them to accumulate fortunes over the years.
“If the pay is so attractive that the director will be motivated to do everything reasonably possible to keep that justice train rolling,” said Marc Goldstein, chief of U.S. research at ISS Governance, a shareholder advisory group. , “then that will interfere with the director exercising independent oversight over the management team.” ISS has recommended voting against re-election of certain Tesla executives.
Mr. Musk and Tesla did not respond to requests for comment.
Ms. Denholm’s testimony in the Delaware Court of Chancery arose last week about a pay deal that Mr. Musk received in 2018 that ultimately netted him tens of billions of dollars in Tesla stock. A shareholder filed a lawsuit claiming that the payout was excessive and that the board did not act with sufficient independence in approving it.
Mr. Musk served as both chief executive and chairman of Tesla until he was forced to step down as chairman in 2018 as part of a settlement with the Securities and Exchange Commission to resolve allegations of securities fraud.
Ms. Denholm, a former telecom executive who assumed the presidency, has earned huge sums as a director. Her compensation, which consisted almost entirely of stock options, was $5.8 million in 2020, well above the average salary for an executive at a major publicly traded company.
A study by Steven Hall, a compensation consultant, found that executive pay averaged just over $300,000 at large companies in 2020. On the higher 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 awarded Ms. Denholm compensation, paid almost entirely in Tesla stock options, that valued the company at more than $30 million. As Tesla’s shares rose in value, she was able to sell her shares for significant profits. According to the securities filings, she has sold Tesla stock worth $280 million since 2020. Ms Denholm did not respond to requests for comment.
In the shareholder lawsuit, attorneys for the plaintiff, who wants Mr. Musk’s 2018 salary agreement to be nullified, sought to demonstrate that Tesla’s board was more like a private club than a committee of seasoned professionals focused on the search for shareholders. Tesla executives have described their personal connections to Mr. Musk and sometimes to each other.
Some of them pointed to the surge in the company’s share price since 2019 as proof that Mr. Musk had done a great job and was an invaluable asset to the automaker.
Ira Ehrenpreis, an investor who heads Tesla’s compensation committee, has been close to Mr. Musk for years. According to court documents, he helped Mr. Musk design the 2018 pay deal, which, after Mr. Musk met 11 of 12 performance targets, paid out shares worth about $40 billion at Tesla’s current share price.
In 2018, Tesla paid Mr. Ehrenpreis nearly $10 million, almost all of it in stock options, to cover three years of his board duties. He did not respond to requests for comment.
Antonio Gracias, an investor who served on Tesla’s board until last year, admitted in court that he had known Mr Musk for more than 20 years and that the two had been through “a lot of hard times” together, bringing them closer. . He acknowledged that he and Mr. Musk had vacationed together, visited each other’s homes, shared meals and talked about their children. Mr. Gracias also acknowledged that he attended Mr. Musk’s second wedding and Kimbal Musk’s wedding, and that he was friends with Mr. Musk’s mother and sister. Mr Gracias acknowledged that he had been on ski trips with Mr Musk and described James Murdoch as “a great skier”.
Mr Gracias said he was able to maintain his independence while on holiday with Mr Musk because of their “trusting and respectful relationship”. Mr. Gracias did not respond to requests for comment for this article.
In court, Mr. Murdoch said he met Elon Musk in the late 1990s when Mr. Musk was working at a digital advertising company. The two got back together after Mr. Murdoch, then living in Britain, bought one of the first Tesla vehicles to be sold in Europe and contacted Mr. Musk to thank him. Mr Murdoch said he had been to Jerusalem and Mexico with Mr Musk and his family. He also acknowledged attending Kimbal Musk’s wedding, having dinner with Kimbal Musk and his wife, and personally investing in SpaceX. Mr. Murdoch also said he bought shares of Tesla before joining the board.
Since joining the board in 2017, Mr. Murdoch has received $11 million, primarily in stock options, because he is a director of Tesla and has an interest in the company worth more than $200 million, according to estimates at based on Tesla’s securities disclosure. Mr Murdoch did not respond to requests for comment on his Tesla ownership and whether the board was doing enough to ensure Mr Musk was not distracted.
Mr. Murdoch testified in court in Delaware that a board committee was monitoring the situation on Twitter, adding that Mr. Musk had identified a potential successor at Tesla in recent months but did not say who it was.
In court, Mr. Musk last week made light of the inferences that the Tesla board was an elite club of friends. When asked about his holidays with Mr. Murdoch, he said his time off was less focused on leisure and more on getting work done, describing it as “email with a view”.
