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FutureStarrWhy Tesla's Board Nominee Is Causing Controversy Among Investors
Recent fluctuations in Tesla's stock price reflect growing concerns that its board lacks independence to check on Chief Executive Elon Musk. That is due to five of its eight non-executive directors having personal ties or companies affiliated with Mr. Musk or one of his companies. These include two of the longest-serving directors, Ira Ehrenpreis and Kathleen Wilson-Thompson; independent director Hiromichi Mizuno; as well as two newcomers -- James Murdoch and Joe Gebbia. 1. He Is a Co-Founder Investors Are Upset About Tesla Board Nominee mes Tesla shareholders have expressed a number of worries for some time that CEO Elon Musk has become overstretched due to Twitter CEO duties as well as overseeing Tesla, an electric car company with operational issues that has had difficulty. Many investors believe that an auto industry veteran on his board would help Musk better direct his company. Such an expert would enable Musk and his management team to concentrate their attention on what's most crucial - such as developing the Model 3 sedan. Tesla needs a plan in order to introduce their new product line quickly and build customer trust, both of which are vital elements in its future growth. Furthermore, its board should look into hiring a chief operating officer under Elon Musk's direction who can handle daily operations efficiently while creating an atmosphere which fosters employee happiness and retention. This is particularly relevant given that Elon Musk appears to be using Twitter to release information about the company instead of turning to his executive team for advice, causing considerable concern among investors who fear this could damage performance and cause its stock price to plummet further. In the meantime, shareholders of Tesla Inc are discussing ways to enhance its governance to prevent similar issues in the future. It has been recommended that their board add a director with experience in auto industry as well as two independent directors; also being criticized is its allowing its founder Elon Musk to control its board and several of their directors have expressed frustration over Mr. Musk's use of social media such as Twitter which have caused several of them to urge him to stop using Twitter and focus on building business rather than engaging in these distractions. 2. He Is a Former CTO An investor group is encouraging shareholders to vote against a Tesla board nominee with close ties to CEO Elon Musk. He is set to replace Hiromichi Mizuno who won't seek reelection and become their next Class I director. Straubel has long been part of Tesla, serving for 14 years as CTO and becoming known by many as Elon Musk's quiet right hand. He was responsible for some of its most important technologies - batteries included. He led the construction and design of Tesla's Nevada Gigafactory during his time there and contributed greatly to its Model 3 sedan's creation. He left the company in 2019 but remains an advisor, having long been considered an intimate friend of Musk. Credited with keeping its stability during its turbulent times, he is widely recognized for having helped steer it away from potential disaster. Straubel's nomination comes amid events which have raised investor concerns over Tesla's management, with its stock dropping significantly during 2018. On Monday, shareholder groups led by SOC Investment Group sent a letter to Tesla shareholders urging them to vote against Straubel's nomination, as it would add independence issues onto an already unbalanced board that has failed to control CEO Musk's control of it. The letter states that the board tends to defer to Musk's behavior, leading to increasing worries over its ability to compete and grow. Furthermore, Musk's recent acquisition of Twitter for $44 billion may present another distraction and have an adverse impact on finances of the company. 3. He Is a SpaceX Director Investors have expressed concerns over Straubel's nomination as director, believing he may serve as a weak counterbalance to Elon Musk as CEO of Tesla Motors Inc. While stock has gone up since being named to this position, it still is far off its peak levels and therefore risks declining further. Investors are also concerned by the reelection of directors Ira Ehrenpreis, James Murdoch and Brad Buss who all share personal ties to Elon Musk. Ehrenpreis is an investor in SpaceX while James Murdoch has long had connections to him; dining together at his wedding and vacationing together; also speaking about investing in Space X with him as an advisor. ISS and Glass Lewis, two proxy advisory firms, both advised shareholders against voting in favour of all three. Their reasoning being that furthering reducing Tesla's independence by reinstating non-independent directors could further compromise Tesla. Glass Lewis indicated that reelecting non-independent directors such as Gracias and Murdoch will decrease the proportion of independent board members from 38% to only 38%; as a result they urged shareholders to vote against both of them re-election. ISS voiced concerns over Ehrenpreis's compensation which may create conflicts of interest and should therefore not be approved. Critics also took issue with how Gracias pledged his shares as collateral against debts owed to third parties, something widely considered an example of management capture; many companies have banned this practice. An effective Board is crucial to Tesla's success; however, finding someone capable of managing it independently from Musk is more challenging. Individuals interested in taking over should seek someone with expertise in automotive-related fields who respects his leadership style and appreciates what Musk brings to the table. 4. He Is a SpaceX Investor Tesla's board includes several longtime investors with close ties to CEO Elon Musk. Before last year, however, Robyn Denholm from an Australian telecom company executive position was the sole director who did not share such relationships. Recent months, however, some directors have become increasingly alarmed at Mr. Musk's bizarre behaviour and especially his tweeting about plans to take the company private - sparking concerns among investors about whether this proposed transaction can be funded and his ability to meet ambitious financial targets of car maker Tesla Motors. Not only are investors wary of Mr. Musk's Twitter activity; his actions have also caused turmoil among company directors, according to three people familiar with their thinking. They've become frustrated that he's been wasting their time and resources by pushing deals forward when they were still early stage, according to these three people. One director has asked Mr. Musk to stop using Twitter, while another has advised him to focus on building cars and launching rockets instead of social media posts like those found on Twitter. Other members of Tesla's board, as well as its public-relations team have voiced similar sentiments, according to sources close to them. Venture capitalist Ira Ehrenpreis has been investing in SpaceX since the late 1980s. He enjoys an ongoing personal relationship with Elon Musk and testified in court that he was one of the initial purchasers of shares for SpaceX. Other SpaceX directors include James Murdoch, the CEO of 21st Century Fox and Linda Johnson Rice, the chairman and CEO of Johnson Publishing Co. Both of these individuals have established long-standing relationships with Musk, enjoying frequent social interactions together. 5. He Is a SpaceX Employee Elon Musk is widely recognized as an innovator. Through his incredible drive and unmatched confidence, SpaceX and Tesla have both become valued companies valued at over $137 billion each. SpaceX CEO Elon Musk has also been accused of retaliation against employees who criticize his conduct online and by writing an open letter criticizing Mr. Musk's online behavior and asking SpaceX to enforce its policies against sexual harassment and discrimination more vigorously. Eight former workers filed charges this week allege SpaceX fired them after writing open letters against his behavior online and calling upon SpaceX to enforce its antisexual harassment and discrimination policies more strictly. The letter, published to an internal messaging channel of SpaceX in June and distributed to Ms. Shotwell via internal messaging channels, detailed the authors' grievances with Elon Musk's "harmful Twitter habits" as well as calling on her firm to create more stringent policies against misconduct. A screenshot seen by The New York Times indicated this proposal among several that were put forth. Another proposal called on SpaceX to make public any harassment claims filed against Elon Musk and create an open and accountable process for responding to those claims. A dozen employees signed off on this letter of demand. Some of the letter's authors are now suing SpaceX for unfair labor practices, alleging they were punished by management for writing and publishing the letter publicly. According to them, SpaceX retaliated against them after publicizing it publicly. SpaceX employees have previously been accused of discrimination and retaliation after criticizing CEO Elon Musk; in 2016, a judge found that Mr. Musk illegally fired employees who attempted to form unions. At his core, Elon Musk is known for being a control freak when it comes to making decisions; so it was surprising when some investors raised concerns that his strong personality may be causing too much disruption within his companies. After all, this billionaire CEO built multibillion-dollar companies from scratch before embarking on his mission of sending humans to Mars!