Close ties: Tesla Motors CEO Elon Musk. Five of Musk’s six fellow board members at the vehicle maker have personal or professional connections to him. Among the directors is his brother, Kimbal. Picture: REUTERS
Close ties: Tesla Motors CEO Elon Musk. Five of Musk’s six fellow board members at the vehicle maker have personal or professional connections to him. Among the directors is his brother, Kimbal. Picture: REUTERS

San Francisco/New York — Tesla says it is searching for independent directors after an influential group of investors put pressure on the car maker’s board to add two members who do not have ties to Elon Musk.

Five of Musk’s six fellow board members had personal or professional connections to the Tesla CEO, which could jeopardise their independence, the California State Teachers’ Retirement System (Calstrs) and four other investors wrote on Monday in a letter to Tesla’s lead independent director.

The managers of a combined $721bn in assets also pushed for yearly elections of directors, rather than votes staggered every three years.

"Directors should be held to a higher standard of independence given the conflicts of interest that permeate this board," the letter to Tesla director Antonio Gracias said. "A thoroughly independent board would provide a critical check on possible dysfunctional group dynamics, such as groupthink."


The push is a signal that longstanding concerns with Tesla’s boardroom remain even as the company’s shares soar. Investors took issue with directors’ ties to the CEO during the lead-up to 2016’s merger with SolarCity. Musk’s cousins ran the money-losing solar panel installer, and he owned more than 20% of both businesses. Pressure to strengthen management oversight is rising as Tesla’s market value climbs to levels that rival some of the world’s biggest vehicle makers.

"We are actively engaged in a search process for independent board members, which is something we committed to do several months ago, and expect to announce new additions fairly soon," a Tesla spokesman said in an e-mail. "We regularly engage with our shareholders and value their feedback."

Tesla has yet to publish the proxy for its coming annual meeting. The company has indicated to the US Securities and Exchange Commission that a proposal for annual director elections from the Connecticut Retirement Plans and Trust Funds could be voted on.

The Connecticut funds are among the investors that signed the letter to Gracias, along with Calstrs, the second-largest US pension fund.

"Getting independent people on the board is important in terms of holding management accountable," said Etelvina Martinez, the corporate governance manager at CtW Investment Group, which also signed the letter. "Shareholders need to be able to hold management accountable. While the stock price is doing extremely well, there are still concerns about corporate governance."

Tesla’s board is made up of Musk; his brother, Kimbal Musk; Gracias, the founder of a private equity firm and a director 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 chief operating officer of Telstra, Australia’s largest telecommunications company.

Musk is Tesla’s largest shareholder, with a stake of almost 21%, according to data compiled by Bloomberg. Gracias is the sixth-biggest, with 3.75%.

Annual Elections 

While the pension funds behind the letter do not have large positions in Tesla on their own, they are influential among other institutional investors.

Calstrs was one of the founding members of the Investor Stewardship Group, which assembled major fund managers to set corporate governance goals in January. The group, whose members include BlackRock, State Street, Vanguard and T Rowe Price, generally backs annual board elections to increase accountability.

"As companies grow up and mature, they need to have governance practices that reflect that," said Philip Larrieu, an associate portfolio manager for Calstrs. "When the stock is doing well, the argument is ‘we don’t need to make changes, we are doing well’. But we will push for these changes regardless."

Investors have pushed companies broadly over the past few decades to move to more frequent director elections. Fewer than 11% of S&P 500 companies have staggered board elections at present, down from 32% in 2011, according to governance data provider Equilar.

In 2016, 10 proposals seeking declassified boards received 80% support from shareholders on average, according to data compiled by

Tesla shares have climbed 44% so far in 2017, valuing the company at more than $50.3bn. At the close on Tuesday, Tesla’s market capitalisation was $5.4bn higher than Ford Motor and trailed General Motors by about $461m.


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