Tesla: The spotlight has turned on its directors as Elon Musk asks for more control. Are they up to the fight?
The man in charge of Tesla (TSLA) wants even more control of the company — and CEO Elon Musk is putting public pressure on the company's board of directors to acquire it.
Musk warned earlier this week that for him to steer the all-electric carmaker to become a global leader in artificial intelligence and robotics, he'd need even greater sway over the company's decisions.
"He does have bargaining power in the sense that there is only one Elon Musk," said David Kass, a professor of finance at the University of Maryland. "It looks like a negotiation."
In a post on X, the social platform he owns, Musk said, "I am uncomfortable growing Tesla to be a leader in AI & robotics without having 25% voting control. Enough to be influential, but not so much that I can’t be overturned." Otherwise, he said, "I would prefer to build products outside of Tesla."
Musk once held more than 20% of Tesla shares but sold a significant chunk to help finance his purchase of what was then Twitter. He currently holds a nearly 13% stake as the carmaker's largest shareholder.
A threat? A negotiation? Both? No matter. Musk's latest salvo has, at the least, placed a harsh spotlight on ongoing governance issues at Tesla and the singular influence he holds over the company.
Tesla did not respond to requests for comment.
His latest demands, along with a recent Wall Street Journal report revealing some insiders' concerns about his alleged illicit drug use, raise further questions about whether the board is too cozy with the company's headstrong executive. Musk criticized the Journal's report and said he had not failed recent random drug tests, without explicitly denying the details of the article.
"Whatever I'm doing, I should obviously keep doing it," he posted on X last week, boasting of his business successes.
50 billion reasons to care
Musk's public complaints about control and compensation are notable due to the magnitude of his current CEO performance package, which has elevated him to the rarified status of the world's richest person. Set in 2018, Musk's pay package has the potential to add up to more than $50 billion.
The conditional gains were so large that a shareholder lawsuit filed the same year alleged the plan constituted corporate waste and unjust enrichment, and that board members breached their fiduciary duties by approving the plan. The trial was held in November 2022, and post-trial briefings and arguments are complete, according to Tesla's SEC filings.
Musk said on X that "the Tesla board is great. The reason for no new 'compensation plan' is that we are still waiting for a decision in my Delaware compensation case."
His push for greater control is significant because Tesla's board has long drawn criticism for not serving as a check on the notoriously impulsive executive.
"I haven’t seen a situation like this before, but my first reaction is that a CEO wanting more control over a company would not be a reasonable justification for a large grant of shares for many investors," said Brianna Castro, senior director of US research at Glass Lewis, a shareholder advisory firm.
Musk's litany of outbursts, rash decision making, and inflammatory public remarks have prompted even loyal investors to criticize the board for not holding Musk accountable.
"It’s time for Tesla’s board to wake up and do their job," one prominent Tesla bull said in late 2022, at the height of the Twitter takeover drama. Other market observers over the years have called on the board to install a more even-keeled operator to help Musk run the company.
'The board is his board'
Critics have also focused on the board's makeup itself. Some members, they say, are too closely tied to Musk to exercise robust oversight as company directors.
"He’s got a lot of power, plus the board is his board," said William Klepper, academic director and adjunct professor at Columbia Business School. "I don’t see them having the strength of good governance to stand up to Elon’s request," he said.
A close look at the board members and their connections to Musk supports Klepper's point.
Several board members have personal ties to the executive. That has the potential to cloud their judgment when deciding on matters that could pit the interests of shareholders against those of Musk, the individual.
That the board is comprised of several Musk supporters also challenges the notion that the institution serves as an independent overseer of the executive, rather than as an advisory committee, or worse, as enablers, with a sibling, friends, and business allies among the group.
Here's a look at who sits on the company's board:
Robyn Denholm, Chair of the Board
Robyn Denholm became chair of the board after a 2018 settlement with the Securities and Exchange Commission, which forced Tesla to replace Musk as chair following his notorious tweet that he had secured funding to take the company private.
But Denholm had been a director since 2014. At the time of the leadership change, some experts questioned how much Denholm could push back against Musk if she had been present during the run-up to the controversy. Prior to joining the board, Denholm held executive positions at the Australian telecommunications company Telstra. She also brought auto industry experience after serving as a senior financial manager at Toyota in Australia for seven years.
James Murdoch
James Murdoch, a friend of Musk, joined the board in 2017. The son of Rupert Murdoch, the media scion who served as CEO of Twenty-First Century Fox from 2015 to 2019, James Murdoch said he met Musk in the 1990s and later reconnected after he purchased one of the first Tesla vehicles in Europe. Murdoch has traveled with Musk's family and said he attended Kimbal Musk's wedding. He also personally invested in SpaceX.
Kimbal Musk
Kimbal Musk is Elon's brother, who co-founded Zip2, a software startup that helped kickstart their rise to prominence in the world of tech-industry entrepreneurship. Musk also served as a director of SpaceX from its founding in 2002 through January 2022, holding a leadership role at another one of Elon's interconnected companies.
Ira Ehrenpreis
Ira Ehrenpreis is a prominent venture capitalist who is the founder and managing partner of DBL Partners. Ehrenpreis is a longtime friend of Musk's and helped design the 2018 compensation package that is still under a legal dispute.
JB Straubel
Before joining the board, JB Straubel co-founded Tesla and served as the chief technology officer from 2005 to 2019. He is credited for inventing or helping to create many of the company’s signature technologies, including those related to electric vehicle batteries, architecture, and power management. Straubel left Tesla in 2019 to focus on his startup, Redwood Materials, which recycles lithium-ion batteries and aims to create a supply chain for electric vehicles and clean energy products. He previously served on the board of SolarCity until Tesla acquired it in 2016.
Joe Gebbia
Joe Gebbia, the co-founder of Airbnb, joined Tesla's board in 2022. Unlike Musk, Gebbia is among a cohort of tech industry visionaries who recently stepped down from their leadership roles after their companies made it big, choosing to pursue other projects as the market environment cooled from the heady days of startup mania. His appointment added another apparent Musk ally to the board. When Musk tried to take Tesla private, Gebbia texted him “Baller move” in August 2018, according to records revealed in shareholder litigation. “Sucks being private without IPO alternative,” he said, appearing to sympathize with Musk's predicament.
Kathleen Wilson-Thompson
Kathleen Wilson-Thompson joined the board in 2018. She was a top human resources executive at Walgreens, where she helped develop an internal center for training and career development. Before her stint at Walgreens, she worked for almost two decades at Kellogg, holding leadership positions in legal and operational roles. She was the third woman to join Tesla’s board.
What's next for the board?
If the Delaware compensation case is decided against Tesla and Musk, that could force the board to scale back Musk's compensation and provide the directors with legal cover to check his latest demands, said Klepper of Columbia Business School.
But in the meantime, Musk's comments have essentially gone unchallenged, leaving some observers with the impression that the board will continue to abide by Musk's whims.
Musk has also said he would accept a dual-class share structure, which would grant him greater voting power and achieve his desired 25% control over the company. But he said in another post on X that this arrangement is unworkable.
Some outside experts and investors have criticized multi-class voting structures, which can cement the power of founders and other early investors, as is the case with Meta (META) CEO Mark Zuckerberg, who commands control of the company through supervoting stock. Shareholder managers with the majority of voting shares face weaker institutional checks on their decision making.
Said Castro of Glass Lewis: "We believe the economic stake of each shareholder should match their voting power."
In the coming year, the board will have to navigate these ongoing tensions and confront Musk's latest demands for greater control.
That may come through the appointment of new directors who aren't already part of Musk's circle. But much will depend on Tesla's stock price in the quarters ahead.
Happy shareholders tend not to talk about abstractions like corporate governance when their portfolios are growing. But if Tesla's stock price languishes, even loyal boosters can lose their patience.
Perhaps the greatest challenge to the board is proving its independence from the man so intrinsic to the value of the company.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.
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