Coverage: Tesla is cutting the size of its board
Tesla Inc. said it’s shaking up its board with four directors, including three long-time insiders, to leave when their current terms expire, according to a surprise announcement in an SEC filing that posted late Friday.
Alan Ohnsman of Forbes had the news:
The move is part of a “phased streamlining of the size of the Board to allow it to operate more nimbly and efficiently while maintaining new ideas, expertise and experiences on the Board,” the company said.
Brad Buss, Antonio Gracias, Stephen Jurvetson and Linda Johnson Rice“agreed collectively with the Board and its Nominating and Corporate Governance Committee that each of them will not stand for re-election to the Board at the expiration of their respective current terms,” according to the filing. Terms for Buss and Rice conclude as of the annual shareholder meeting scheduled for June 11, while Jurvetson’s wraps up at next year’s meeting. Gracias’ term expires in 2021, though he could be off a year earlier, “if our stockholders approve a director term reduction proposal as described in the Preliminary Proxy Statement.”
This is the biggest single change since Tesla’s 2010 IPO and when complete the departures would shrink its 11-member board to seven people, including Musk and his younger brother Kimbal and clean-tech investor Ira Ehrenpreis. In late December, the company added billionaire Larry Ellisonand Kathleen Wilson-Thompson, an executive with the Walgreens Boots Alliance, as independent board members to fulfill a settlement with the SECover Musk’s tweets about taking the company private. He also lost his position as Tesla board chairman, a position taken over by board member Robyn Denholm.
Rachel Frazin of The Hill reported that the board if dealing with a dispute between Musk and the SEC:
Tesla referred The Hill to a proxy statement that said, in part, that there had been a “significant increase in the size of the Board from seven to 11 directors in the past five years” and a “duplication of certain areas of experience or expertise on the Board.”
The statement also said the board hoped to retain “directors with the current professional and personal wherewithal to devote a greater degree of time and focus than may be expected of other public company board members” and achieve “a model of diversity wherein each director offers an expertise and background that is unique to him or her on the Board.”
Tesla came under SEC scrutiny last year after CEO Elon Musk tweeted that he planned to take the company private at $420 per share. The agency later sued Musk, alleging that he committed securities fraud. Musk later reached a settlement with the SEC.
Earlier this month, a judge ordered Musk to settle another dispute with the SEC after the agency accused him of violating the settlement.
Tim Higgins of The Wall Street Journal reported that the company also proposed a series of steps designed to improve its governance:
Along with shrinking the size of the board, Tesla also laid out a series of shareholder proposals that it says are designed to improve its corporate governance and that take into account input from institutional investors. The proposals include removing a supermajority voting requirement and shortening director terms to two years from three.
Mr. Gracias’s term is slated to end in 2021, but he would exit next year if the new term-length proposal is approved by shareholders at the annual meeting in June.
“It is the appropriate time to give our stockholders a greater voice by facilitating their ability to effect changes to certain corporate and board matters,” the company said in the filing, “and allowing them to vote on the performance of our directors with greater frequency.”
Jeffrey Sonnenfeld, a Yale University management professor who has criticized Tesla’s board, called the directors’ departures a modest step in the right direction. Another vocal critic, Dieter Waizenegger, executive director of CtW Investment Group, which represents union-sponsored pension funds that own Tesla shares, said he believes Tesla could have gone further in improving the board, for example, by adding directors with manufacturing expertise.