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Tesla’s Stock-Split Proposal Tops a Packed Annual Meeting Agenda

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(Bloomberg) --

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Tesla hosts its annual meeting — nay, Cyber Roundup — on Thursday from its new plant in Austin, Texas, where the biggest item on the agenda is a likely shoo-in proposal clearing the way for a 3-for-1 stock split.

Elon Musk is of course famously not one for formality, so there’s bound to be more than the perfunctory discussion of management and shareholder measures and sharing of vote results. The chief executive officer uses these meetings to woo and whip up the retail investors he and the company have cultivated for years. Some die-hards who’ve stuck with the stock through dramatic ups and downs are now Teslanaires.

While Musk’s Q&A may well steal the show, there are lots of proposals worth breaking down beforehand. Here’s a guide of what to watch for during this year’s meeting, which is scheduled to begin at 5:30 p.m. New York time:

More Shares to Split

Tesla’s stock surged in late March when the company announced plans to seek investors’ authorization for the company to have more shares outstanding, which would facilitate its second stock split in two years. Bloomberg Opinion columnist Matt Levine explained why the company is taking these steps here and here.

From the acquisition of SolarCity to the unprecedented pay package for Musk, shareholders have followed Tesla’s lead through many controversies. This isn’t another one. The stock soared when the company did a 5-for-1 split in August 2020, so why not try this again?

Directors Staying and Going

This year’s meeting will mark the end of a short directorship for Larry Ellison, the billionaire co-founder of Oracle and friend of Musk who joined Tesla’s board in the wake of the settlement the company and its CEO reached with the Securities and Exchange Commission in late 2018.

Ellison won’t be replaced, so Tesla’s board will shrink to seven members. Two of them — venture capitalist Ira Ehrenpreis and Kathleen Wilson-Thompson, another director who joined after Musk’s “funding secured” ordeal — are up for re-election. Proxy adviser Institutional Shareholder Services has recommended shareholders vote against both, citing continued concern about the amount of borrowing against Tesla stock that Musk and other directors do, which could put investors at risk if they’re forced to meet a margin call.

Barbarians at the Gate?

Another reason ISS opposes Ehrenpreis and Wilson-Thompson has to do with the response to a proposal last year that each of Tesla’s directors be subject to election annually. While this received the support of 57% of votes cast, Tesla has proposed a half measure: to shorten director terms to two years, from three. ISS called this out as unusual, writing that companies typically declassify their boards when a proposal to do so draws majority support.

Tesla has pushed back against ISS’s criticism, arguing that it will be better able to defend itself from “opportunistic corporate raiders” and “special interests that seek only short-term returns” if its directors only face a vote every two years.

Diversity and Disclosure

Another measure shareholders backed last year called for Tesla to produce an annual report on diversity and inclusion efforts. The company provided detailed data on the racial composition of its US workforce in May, selecting a handful of companies to argue its racial representation compares favorably to others in the tech and automotive industries.

This year, shareholders are after more disclosure and diversity efforts:

  • Proposal 7 calls for Tesla to prepare an annual report on how much money it’s spent on lawsuits and disputes related to abuse, harassment and discrimination, amid state and federal investigations into allegations that racism runs rampant within its workplace.

  • Proposal 8 requests that Tesla report efforts to enhance diversity among its directors. With Ellison’s departure, its board comprises five men, one of whom is Asian, and two women, one of whom is Black.

  • Proposal 9 urges Tesla for the third year in a row to publicly report on its use of mandatory arbitration and how it’s affecting the company’s brand, employees and workplace culture.

The ESG Debate

In the month leading up to this year’s meeting, Musk has loudly criticized environmental, social and governance investing, especially after Tesla lost its spot on the ESG version of the S&P 500 Index.

Proposal 10, which requests that Tesla issue a report on how its lobbying aligns with the goals of the Paris Agreement to limit global warming, may invite another swing at ESG from Musk. The company argues this would be a waste of time — its very mission is to speed up the world’s shift to sustainable energy.

But while Tesla’s electric vehicles, solar roofs and battery products make the company an unquestioned leader with respect to the E- in ESG, two measures up for a vote this year speak to some of its social vulnerabilities.

  • Proposal 12 requests that Tesla report on its progress toward trying to make its batteries cobalt-free in order to eradicate use of child labor in the battery supply chain. The board opposes this and lays out its procurement strategy and supply chain diligence in the company’s proxy statement.

  • Proposal 13 asks that Tesla assess and report how exposed it is to water supply risks, and calls for the company to be more transparent about water use at its facilities, a particularly hot-button issue for the company in Germany.

Collective Bargaining

Finally, a Canadian nonprofit is urging Tesla to adopt a collective-bargaining policy.

The US prohibits anti-union threats or retaliation while allowing companies to campaign aggressively against unionization. Musk has been a vocal critic of the United Auto Workers, and the National Labor Relations Board ruled last year that he and the company repeatedly violated US labor law by firing a union activist, interrogating pro-union employees and threatening staff against organizing.

This has been a source of tension between Musk and the Biden administration, although there are signs this may be blowing over. The White House recently highlighted Tesla’s investments in the US, while Transportation Secretary Pete Buttigieg credited the company for its EV leadership.

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(Corrects fifth paragraph to say 5-for-1 stock split)

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