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Tesla disciples don’t care if he’s not a governance god


Those who bought Tesla shares this time last year at around $US225, for example, have been rewarded handsomely for their faith. The stock is now worth $US990.90 a piece. Perhaps the majority of investors view a poor governance report card as a price they are willing to pay.

Last year ISS recommended investors vote against the re-election of one of the directors on the compensation committee based on the fact that Tesla’s non-executive directors are paid excessively and there was no rationale disclosed for it − plus it had the potential to cloud director independence.

It is certainly a valid point but one that didn’t cut it with shareholders at the 2019 annual meeting. The director under fire, Ira Ehrenpreis, was elected with 84.6 per cent support.

This year ISS is recommending a vote against Tesla’s chairman − Australia’s own Robyn Denholm. Again excessive director salaries are a major concern for ISS.

The company paid $US7.4 million ($10.7 million) to Kathleen Wilson-Thompson, $US5.9 million to Oracle co-founder Larry Ellison, $US2.7 million to Denholm and $US1.2 million to Steve Jurvetson. These director fees are well outside the ballpark of other companies of similar size.


(Just as an aside, ISS noted this year Ellison and James Murdoch failed to attend at least 75 per cent of the meetings of the board.)

And this year ISS is concerned about more than excessive director fees. ISS says Tesla directors have “pledged” or borrowed against their shares and that over the past year the number of pledged shares has risen by 36 per cent – which now represents about 10 per cent ($US8 billion) of Tesla’s outstanding stock.

“The increase in pledging activity at the company with the absence of a clear rationale and lack of a more robust anti-pledging policy calls into question the audit committee’s ability to effectively oversee risk”, ISS noted.

The proxy adviser went on to say, ‘‘Pledging of company stock by directors or executive officers can pose a risk to the investments of outside shareholders. Directors and executives with a pledged position may be forced to sell company stock (for example, to meet a margin call).”

Denholm made headlines a few years ago when she left her plum job as chief financial officer of Telstra to take the much higher-profile chairman’s role at the electric auto manufacturer.


But as Tesla chairman she has clearly not seen the merit in implementing Telstra’s securities trading policy. Like most large Australian companies Telstra does not allow senior executives of directors to borrow against shares in the company.

While she had been an existing director of Tesla for a few years, she was catapulted into the chairperson’s role in 2018 as part of a settlement between Musk and the US securities regulator after which he agreed to abandon the dual role of chief executive and chairman.

(As a nod to the laws around disclosure, the regulator took issue with a tweet from Musk in which he spoke of having the finance to privatise Tesla.)

But with Musk at the helm many of the governance norms have been ignored.

The company doesn’t maintain traditional incentive programs. Senior executive officers’ pay consists entirely of base salary and what ISS described as “sizeable equity awards that lack performance vesting conditions and long-term performance goals”.

But as long as the Tesla share price outperforms, Musk’s disciples will be unlikely to quibble with how much he rewards executives and directors who he has taken along for the ride.

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