Elon Musk’s Magnificent Seven: How Dream Deal May Test Boardby
‘You can’t have a board that is just an echo chamber’
Shareholders hope SolarCity merger will bring director reform
That’s hardly surprising. Six of Tesla’s seven directors are Musk insiders with SolarCity ties, a setup often criticized as overly cozy. “You can’t have a board that is just an echo chamber,” said Vivek Wadhwa, a professor at Carnegie Mellon University and longtime critic of boards’ lacking diversity.
Now some Tesla shareholders are saying a Tesla-SolarCity combination could finally bring changes to the boardroom, presumably one with slots for more directors. “The upcoming merger is an opportunity to rethink the board’s structure,” said Dieter Waizenegger, executive director of CtW Investment Group, representing pension funds that hold Tesla shares. Size, though, isn’t the main issue for CtW. “A bigger board is not necessarily a better board,” Waizenegger said, “if it is stacked with family and friends.”
CtW wants Tesla to add two independent directors, and to rewrite the rules so immediate family members can’t serve concurrently, as Musk and his brother Kimbal Musk do now, and to prevent the same person from being chief executive officer and chairman, as Musk is.
There’s no shortage of advice about what the electric-car maker should do to make the board healthier, in critics’ opinions, for a company with a $30 billion market value. Charles Elson, head of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said with just seven members the board looks like one belonging to a fledgling start-up.
Elson agrees the CEO and chairman’s jobs should be separated. “The person being monitored by the board shouldn’t be chairing it,” he said. Wadhwa, a distinguished fellow at Carnegie Mellon’s College of Engineering at its Silicon Valley campus, recommends more women and people from foreign markets where Tesla does business. At the moment, he said, Tesla is similar to Silicon Valley tech companies where “boards are basically boy’s clubs.”
What are the chances any of that will happen? Tesla directors didn’t respond to requests for comment, nor did the company.
In addition to the Musk brothers, the Tesla board members are Antonio Gracias, the founder of a private-equity firm who is a director at SolarCity and at Musk’s rocket company SpaceX; Ira Ehrenpreis, a venture capitalist and SpaceX investor; Brad Buss, a former SolarCity chief financial officer; Steve Jurvetson, a venture investor and SpaceX director; and Robyn Denholm, the only woman, a former CFO at networking vendor Juniper Networks Inc.
Musk -- the largest shareholder of Tesla and SolarCity -- is chairman of the solar-panel installer. His cousin, Lyndon Rive, is CEO. Other connections have raised questions about Tesla directors’ ability to fairly evaluate the deal, with Ehrenpreis’s business partner, Nancy Pfund, serving on the SolarCity board along with John H.N. Fisher, a business partner of Jurvetson’s.
Tesla’s major shareholders, including Fidelity Investments and Baillie Gifford and Co., declined to comment for this story.
Seven holders with minority stakes have sued, claiming directors breached their fiduciary duties with the SolarCity bid. One alleges Musk has “demonstrated his dominance over the board” while another claims the SolarCity deal would benefit Musk’s inner circle “at the expense of Tesla and its minority stockholders.” At a hearing in Wilmington, Delaware, Monday, a judge ruled that the lead plaintiff in the combined lawsuits will be the Arkansas Teacher Retirement System.
Palo Alto, California-based Tesla sells high-end, all-electric vehicles in the U.S., Europe and Asia and is racing to bring the mass-market Model 3 out next year. It’s building a battery factory in Nevada and selling batteries to utilities, and has electric buses and semi-trucks in the works. The Tesla semi-autonomous technology known as Autopilot is under investigation by U.S. safety regulators following a fatal crash in Florida. (On Sunday, Musk posted a Tweet that said that he’d like to “correct expectations that Tesla/SolarCity will need to raise equity or corp debt in Q4. Won’t be necessary for either.”)
Putting SolarCity under the Tesla roof would add to the workload. But Musk has said it’s time to integrate energy generation and storage, calling the fact the two companies are separate “largely an accident of history.” Analysts aren’t so sure: Goldman Sachs Group Inc. said Thursday that it downgraded Tesla because the proposed merger makes Tesla a riskier bet. The shareholder votes on the all-stock bid, valued at roughly $2.1 billion, haven’t been scheduled.
Meantime, Musk is also CEO of SpaceX, which he founded in 2002. After a Sept. 27 speech detailing his plan to colonize Mars, he joked at a press conference about his myriad responsibilities, saying, “I do moonlight at another job.”
And there’s another issue for some Tesla-watchers: While the company boasts a deep bench on its executive team, it doesn’t have a chief operating officer. That’s unusual for its size and its ambitions, as it looks to move from niche player to high-volume auto manufacturer and expand its mission beyond clean transportation to clean energy. When asked on a recent earnings call whether he’d given any thought to hiring a COO, Musk politely dodged the question.