Tesla, Inc. (NASDAQ:TSLA)
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By Tim Higgins
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 12, 2019).
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 12, 2019 02:47 ET (06:47 GMT)
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