business

Elon & s Enablers: Tesla & # 39; s Submissive Board can be as big a risk as a whimsical CEO

Elon & s Enablers: Tesla & # 39; s Submissive Board can be as big a risk as a whimsical CEO

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Elon Musk speaking at SXSW.

Elon Musk speaking at SXSW.2018 Amy E. Price

With Tesla closer to the transition from a niche electric car company to a major manufacturer than ever before, discipline and focus have never been needed. And with his ever-growing need for funds and with billions of dollars in equity on the line, you would think that the turmoil generated by the capricious public comments of CEO Elon Musk would have caused a deafening alarm for his administration.

You would be wrong.

After his half-baked plan to personally let the company collapse last month, six of Tesla's nine directors said: "We fully support Elon while continuing to lead the company," despite the fact that his tweets about privatization led to disputes with shareholders and an investigation by the SEC. (Musk and brother Kimbal, who are board members, have prevented themselves from considering the plan.)

That happened when he talked about working hours of 120 hours, camping at the Tesla factory in Fremont, California, during his attempt to stimulate the output of Model 3 and little to sleep. He said in tweets that he might be bipolar, possibly making slanderous remarks about a British man who had helped the rescue of Thai youths, had an income visit where he talked to a fan instead of asking analysts questions and smoking marijuana during a podcast. Turnover among highly educated executives in engineering and finance is also a concern, but the board has nevertheless kept silent.

"Enron while it collapsed had no sales as high as this company"

Jeffrey Sonnenfeld, Yales School of Management

"The board is completely negligent here," Jeffrey Sonnenfeld of the Yale School of Management told Forbes. "Enron as it collapsed had no sales as high as this business, and if you go back 18 months, it's 50 important people who left … Where is the board in terms of looking at exit interviews and what is being said by those who leave, at this unrivaled level of instability? "

Musk is a crazy figure with a glow for spectacle since Tesla unveiled the fast electric Roadster at Santa Monica airport in July 2006, with guests from celebrities including California's then Governor, Arnold Schwarzenegger, attending. The company survived near the collapse in 2008 and recovered with a successful IPO in 2010. But it was the Model S sedan launch in 2012, combined with Musk's world-changing ambitions, which made him a hero for many Tesla customers and shareholders. He has never shown much restraint in public commentaries, but this custom has escalated to a whole new level this year.

"Of course he is a creative genius, his role model Nikola Tesla was, and guess what, Nikola Tesla was not able to take scale," Sonnenfeld said.

His advice? Tesla needs a disciplined manager, such as former Ford CEO Mark Fields, someone who manages complex industrial companies, but also understands changing technology and markets.

Musk could better serve Tesla as "a sort of chief creative officer and perhaps vice-chairman or a non-executive chairman," Sonnenfeld said. "He is not at the stage of life where he is fit to be CEO, at best he still works like a startup, but he is no longer a startup."

Tech makers at an early stage usually have a friendly board full of VC types. But as they grow and expand, their need for idiosyncratic, independent board members does. Eight years after the IPO, two-thirds of the nine-man board of Tesla seems to be a rock-solid Musk ally. And judging by the lucrative ten-year compensation package that Tesla's board of directors approved for Musk in March and could potentially be worth billions of dollars to the billionaire entrepreneur, it has been decided that he is irreplaceable.

Fidelity and T. Rowe Price, two of Tesla's largest institutional shareholders, refused to comment on its corporate governance, but investors, including CalSTRS, who manage pensions on behalf of California teachers, and CtW Investments are blunt in their desire for a more independent and active board.

Kimbal Musk at the Milken conference (Patrick T. Fallon / Bloomberg)

Kimbal Musk at the Milken conference (Patrick T. Fallon / Bloomberg)© 2016 Bloomberg Finance LP

"The board must ensure that it runs the business for the benefit of all shareholders," said portfolio manager Aeisha Mastagni, who oversees corporate governance for companies in which CalSTRS invests. "Unfortunately, this board is not sufficiently independent to properly monitor Elon, the board is full of conflicts, including Elons brother Kimbal Musk, who did not take his role as board member enough to attend at least 75% of the meetings."

CtW, which manages pension funds for trade unions, was one of the main advocates for a new board of Tesla, although the last attempt to do so at the annual shareholders' meeting in June was rejected. "Most members of the board are old friends and business partners, and there is his brother," says Dieter Waizenegger, Executive Director of CtW.

Those allies include investor and friend Steve Jurvetson, co-founder of Draper Fisher Jurvetson. However, he has been on leave from the board since November 2017, when he also left his former venture capital company due to an investigation into sexual harassment. There is no indication whether his Tesla chair will be given to someone else.

"The fact that we have this vacancy on the board – it shows that the board has not made a decision about what to do," Waizenegger said.

View the rest of the so-called "independent" sign:

Ira Ehrenpreis, founder and managing partner of DBL Partners, the venture capital company of Silicon Valley, has long been a Musk friend and an investor of Tesla and SpaceX. He joined the Tesla board in 2007. Last year Ehrenpreis gave the opportunity to produce the first Model 3 Tesla, instead he gave Musk as a 46th birthday present.

Antonio Gracias

Antonio GraciasValor Equity Partners

Antonio Gracias, the "leading independent" board member, is another old friend who has supported Musk since his PayPal days through his company Valor Equity Partners. He bought the second Tesla Roadster ever produced in 2008. He was also the target of activist investors who want him from the board because of those close ties.

Brad Buss, former CFO of SolarCity. He joined the board in 2009 as an independent director before taking on the job of SolarCity. Musk was the largest investor and chairman of SolarCity and the company was run by two of his cousins.

Robyn Denholm, COO of the Australian Telstra Corp., joined the board of Tesla in 2014 as an independent member and his first female director.

Universal Music Group and Ebony Honor Sen. Kamala D. Harris in 2017 CBCF ALC

Universal Music Group and Ebony Honor Sen. Kamala D. Harris in 2017 CBCF ALCKris Connor / Invision / AP

Linda Johnson Rice, president of the Chicago-based Johnson Publishing Co., which produces Ebony and Jet magazines, is one of the first non-Silicon Valley or tech industry people to serve on the board of Tesla and is the first African American member. The appointment of Rice and the CEO of 21st Century Fox James Murdoch in 2017 it coincided with the efforts of activist shareholders to increase management diversity and members without previous business contacts with Musk.

Over the years, shareholders Musk and Tesla repeatedly called for a number of problems. Most recently, investors are short-listed and believe that the privatization of Musk was an attempt to manipulate the share price. For the most part, with the exception of a lawsuit filed after the acquisition of SolarCity, legal action has not been directed at the management of Tesla. But that can change.

"A shareholder could take a derivative action that basically says that the board does not exercise its duty of care"

Attorney Peter Haveles, Pepper Hamilton LLP
21st century Fox CEO James Murdoch.

21st century Fox CEO James Murdoch.2017 Getty Images

"A shareholder could take a derivative action that basically says that the board does not exercise its duty of care, seeks compensation as a result and changes corporate governance," said lawyer Peter Haveles, a partner at Pepper Hamilton LLP, who did not conduct litigation against Tesla.

"It's a difficult road, it's not easy to get," at least not for now, he said.

"Let's say the company is in a situation because of this embarrassment, where they can no longer refinance their debt in January and it is a real disaster." It is more likely that there are derived actions at that moment. "

Sonnenfeld, who has studied business management for decades and even knew Steve Jobs, a musk hero who had his own management challenges, does not expect that the board will really change until that happens.

"They must feel a personal danger," he said. "They violate a duty of care, they have a reckless disregard for facts and for operational, financial and communication errors."

(Corrections: update board membership periods for Brad Buss and Robyn Denholm, who was also wrongly mentioned as director of SolarCity. Clarifies that Antonio Gracias has bought his Tesla Roadster.)

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Elon Musk speaking at SXSW.

Elon Musk speaking at SXSW.2018 Amy E. Price

With Tesla closer to the transition from a niche electric car company to a major manufacturer than ever before, discipline and focus have never been needed. And with his ever-growing need for funds and with billions of dollars in equity on the line, you would think that the turmoil generated by the capricious public comments of CEO Elon Musk would have caused a deafening alarm for his administration.

You would be wrong.

After his half-baked plan to personally let the company collapse last month, six of Tesla's nine directors said:[W]he fully supports Elon while continuing to lead the company, "despite the fact that his tweets about privatization led to litigation with shareholders and investigations by the SEC. (Musk and brother Kimbal, who are board members, have prevented themselves from to consider.)

That happened when he talked about working hours of 120 hours, camping at the Tesla factory in Fremont, California, during his attempt to stimulate the output of Model 3 and little to sleep. He said in tweets that he might be bipolar, possibly making slanderous remarks about a British man who had helped the rescue of Thai youths, had an income visit where he talked to a fan instead of asking analysts questions and smoking marijuana during a podcast. Turnover among highly educated executives in engineering and finance is also a concern, but the board has nevertheless kept silent.

"Enron while it collapsed had no sales as high as this company"

Jeffrey Sonnenfeld, Yales School of Management

"The board is completely negligent here," Jeffrey Sonnenfeld of the Yale School of Management told Forbes. "Enron as it collapsed had no sales as high as this business, and if you go back 18 months, it's 50 important people who left … Where is the board in terms of looking at exit interviews and what is being said by those who leave, at this unrivaled level of instability? "

Musk is a crazy figure with a glow for spectacle since Tesla unveiled the fast electric Roadster at Santa Monica airport in July 2006, with guests from celebrities including California's then Governor, Arnold Schwarzenegger, attending. The company survived near the collapse in 2008 and recovered with a successful IPO in 2010. But it was the Model S sedan launch in 2012, combined with Musk's world-changing ambitions, which made him a hero for many Tesla customers and shareholders. He has never shown much restraint in public commentaries, but this custom has escalated to a whole new level this year.

"Of course he is a creative genius, his role model Nikola Tesla was, and guess what, Nikola Tesla was not able to take scale," Sonnenfeld said.

His advice? Tesla needs a disciplined manager, such as former Ford CEO Mark Fields, someone who manages complex industrial companies, but also understands changing technology and markets.

Musk could better serve Tesla as "a sort of chief creative officer and perhaps vice-chairman or a non-executive chairman," Sonnenfeld said. "He is not at the stage of life where he is fit to be CEO, at best he still works like a startup, but he is no longer a startup."

Tech makers at an early stage usually have a friendly board full of VC types. But as they grow and expand, their need for idiosyncratic, independent board members does. Eight years after the IPO, two-thirds of the nine-man board of Tesla seems to be a rock-solid Musk ally. And judging by the lucrative ten-year compensation package that Tesla's board of directors approved for Musk in March and could potentially be worth billions of dollars to the billionaire entrepreneur, it has been decided that he is irreplaceable.

Fidelity and T. Rowe Price, two of Tesla's largest institutional shareholders, refused to comment on its corporate governance, but investors, including CalSTRS, who manage pensions on behalf of California teachers, and CtW Investments are blunt in their desire for a more independent and active board.

Kimbal Musk at the Milken conference (Patrick T. Fallon / Bloomberg)

Kimbal Musk at the Milken conference (Patrick T. Fallon / Bloomberg)© 2016 Bloomberg Finance LP

"The board must ensure that it runs the business for the benefit of all shareholders," said portfolio manager Aeisha Mastagni, who oversees corporate governance for companies in which CalSTRS invests. "Unfortunately, this board is not sufficiently independent to properly monitor Elon, the board is full of conflicts, including Elons brother Kimbal Musk, who did not take his role as board member enough to attend at least 75% of the meetings."

CtW, which manages pension funds for trade unions, was one of the main advocates for a new board of Tesla, although the last attempt to do so at the annual shareholders' meeting in June was rejected. "Most members of the board are old friends and business partners, and there is his brother," says Dieter Waizenegger, Executive Director of CtW.

Those allies include investor and friend Steve Jurvetson, co-founder of Draper Fisher Jurvetson. However, he has been on leave from the board since November 2017, when he also left his former venture capital company due to an investigation into sexual harassment. There is no indication whether his Tesla chair will be given to someone else.

"The fact that we have this vacancy on the board – it shows that the board has not made a decision about what to do," Waizenegger said.

View the rest of the so-called "independent" sign:

Ira Ehrenpreis, founder and managing partner of DBL Partners, the venture capital company of Silicon Valley, has long been a Musk friend and an investor of Tesla and SpaceX. He joined the Tesla board in 2007. Last year Ehrenpreis gave the opportunity to produce the first Model 3 Tesla, instead he gave Musk as a 46th birthday present.

Antonio Gracias

Antonio GraciasValor Equity Partners

Antonio Gracias, the "leading independent" board member, is another old friend who has supported Musk since his PayPal days through his company Valor Equity Partners. He bought the second Tesla Roadster ever produced in 2008. He was also the target of activist investors who want him from the board because of those close ties.

Brad Buss, former CFO of SolarCity. He joined the board in 2009 as an independent director before taking on the job of SolarCity. Musk was the largest investor and chairman of SolarCity and the company was run by two of his cousins.

Robyn Denholm, COO of the Australian Telstra Corp., joined the board of Tesla in 2014 as an independent member and his first female director.

Universal Music Group and Ebony Honor Sen. Kamala D. Harris in 2017 CBCF ALC

Universal Music Group and Ebony Honor Sen. Kamala D. Harris in 2017 CBCF ALCKris Connor / Invision / AP

Linda Johnson Rice, president of the Chicago-based Johnson Publishing Co., which produces Ebony and Jet magazines, is one of the first non-Silicon Valley or tech industry people to serve on the board of Tesla and is the first African American member. The appointment of Rice and the CEO of 21st Century Fox James Murdoch in 2017 it coincided with the efforts of activist shareholders to increase management diversity and members without previous business contacts with Musk.

Over the years, shareholders Musk and Tesla repeatedly called for a number of problems. Most recently, investors are short-listed and believe that the privatization of Musk was an attempt to manipulate the share price. For the most part, with the exception of a lawsuit filed after the acquisition of SolarCity, legal action has not been directed at the management of Tesla. But that can change.

"A shareholder could take a derivative action that basically says that the board does not exercise its duty of care"

Attorney Peter Haveles, Pepper Hamilton LLP
21st century Fox CEO James Murdoch.

21st century Fox CEO James Murdoch.2017 Getty Images

"A shareholder could take a derivative action that basically says that the board does not exercise its duty of care, seeks compensation as a result and changes corporate governance," said lawyer Peter Haveles, a partner at Pepper Hamilton LLP, who did not conduct litigation against Tesla.

"It's a difficult road, it's not easy to get," at least not for now, he said.

"Let's say the company is in a situation because of this embarrassment, where they can no longer refinance their debt in January and it is a real disaster." It is more likely that there are derived actions at that moment. "

Sonnenfeld, who has studied business management for decades and even knew Steve Jobs, a musk hero who had his own management challenges, does not expect that the board will really change until that happens.

"They must feel a personal danger," he said. "They violate a duty of care, they have a reckless disregard for facts and for operational, financial and communication errors."

(Corrections: update board membership periods for Brad Buss and Robyn Denholm, who was also wrongly mentioned as director of SolarCity. Clarifies that Antonio Gracias has bought his Tesla Roadster.)