CtW Investment Group, a shareholder of Tesla Motors (NASDAQ:TSLA) is asking the electric car manufacturer to add two genuinely independent directors to its Board. The investor group also suggested separating the role of Chairman and CEO, which is currently held by Elon Musk.
Dieter Waizenegger, executive director of CtW Investment, reiterated his longstanding concern regarding Tesla’s corporate governance, in a letter to Antonio Gracias, lead independent director of the electric car manufacturer.
According to Waizenegger, Tesla’s proposal to acquire SolarCity is questionable citing the reason that six out of its seven Board members have ties to the solar energy company. He also emphasized that the “market’s hostile reaction to the deal” showed the company’s “failure to establish a corporate governance structure that inspires confidence that the terms are being negotiated in the best interest of investors.”
Tesla Board needs to address its governance deficiencies
The investor group believes that it is critical for the Board of Tesla to address its governance deficiencies before finalizing its transaction with SolarCity.
CtW Investment said Tesla should expand the size of its Board to include two, new permanent, independent directors, who will create a Special Transactions Committee that will review the proposed acquisition of SolarCity.
In addition to separating the Chairman and CEO role, the investment group also recommended declassifying the Board to give shareholders a voice on the annual election of all directors.
Furthermore, CtW suggested the amendment of Tesla’s corporate governance guidelines to state the immediate family members of any current Board member or member of the senior executive team.
“The board of directors of Tesla must maintain a robust governance structure appropriate to the current stage of development of the company,” said Waizenegger.
Proposed SolarCity acquisition at serious risk
CtW Investment believes that the Board of the electric car manufacturers is following a flawed in process in the proposed acquisition of SolarCity. The investor group said the transaction is at serious risk because of the current corporate governance structure of Tesla.
Waizenegger said, “We believe the board of directors at Tesla must be restructured in order to insure that stockholder interests are protected during this proposed acquisition and going forward.”
He pointed out that the primary problem with the electric car manufacturer’s governance is Musk’s continuing dominance of the Board. As Chairman and CEO, Musk also “sits at the heart of a complex relationship among Board members and other companies controlled by him and/or family members.
For example, his brother, Kimbal Musk sits in the Board of Tesla and SpaceX. Lyndon Rive, the CEO of SolarCity is their cousin.
According to Waizenegger, such relationships can become conflicts of interest or even lead to self-dealing behavior when transactions like the proposed SolarCity acquisition are undertaken.
SolarCity Board members recuse themselves from voting on the deal
As Chairman of SolarCity, Elon Musk recused himself from voting on the proposed acquisition. Lyndon Rive and his brother, Peter Rive, who serves as CTO of the company also decided not to participate in the decision process.
As Board member of both Tesla and SolarCity, Antonia Gracias also recused himself.
Tesla co-founder and SolarCity Board member JB Straubel will not vote on the deal as well.