Sustainable Finance Newsletter - Musk vs Tesla shareholders power struggle takes shape

iRobot

31/01/2024 17:27

By Ross Kerber
       Jan 31 (Reuters) - 
    Tesla's annual meeting this spring was already going to
feature a continuing power struggle between Elon Musk and
shareholders frustrated with the electric carmaker's mercurial
CEO. Then came Tuesday's 
    blockbuster Delaware court ruling
     voiding Musk's record $56 billion pay package.
  
    
Only a few other top companies are so closely identified with
their founders, but those examples - like Meta  META.O  or
Alphabet  GOOGL.O  - have multi-class share structures that give
extra control to insiders.
    
Tesla  TSLA.O  in contrast has the classic one-share, one-vote
setup.  Musk currently holds around 13% of the company and
recently floated the idea of gaining about 25% voting control,
raising red flags with corporate-governance experts. 
    
Musk's ambitions conflict with several shareholder resolutions
pushing in the opposite direction, which would give common
investors more say by moving to annual director elections and
eliminating a supermajority voting requirement.

You can read more about the tensions in the main story of this
week's newsletter below. I've also got an item on another
shareholder resolution, an environmental measure at Goldman
Sachs,  GS.N  and links to stories about President Joe Biden's
decision to pause new U.S. approvals for LNG exports and Exxon's
move to block a shareholder resolution in court.
    
Please connect with me on LinkedIn. Or, if you have a news tip,
potential content, or general thoughts you can email me at
ross.kerber@thomsonreuters.com

    This week's most-read
  
    Biden pauses LNG export approvals after pressure from
climate activists
  
    
    ECB is battling an imaginary wage spiral
  
    
    Activist investors fret over Exxon Mobil's lawsuit bypassing
US regulator
  
    
    Tesla's unfinished battle for power
  
Tesla shareholders want to claim more power through resolutions
at the springtime annual meeting, while Musk himself has been
pushing for more control. The tensions can only increase because
of Tuesday's court ruling in which a Delaware judge wrote that
many of Tesla's directors lacked independence because of their
close personal ties to Musk.
       
    Among the resolutions submitted by investors this year, one 
calls for the annual election of directors. Another would
require a simple majority vote to approve major corporate
decisions. Similar measures won above 50% support in previous
years, but not enough to overcome a Tesla supermajority voting
requirement. Together the measures would give investors more
say, such as by allowing them to replace the entire board in a
single year.
            
  
An additional pending resolution asking for details about its
efforts to protect employees from harassment came close to
winning a majority in 2022 but was not voted on last year.
    
    Activists hope they have built more backing for their
reforms this year. They say the changes could bring more
accountability for Musk who since the fall has faced criticism
over an antisemitic social media post and his use of a profanity
at a conference.
    
More recently, Musk said on his social media platform X on Jan.
15 that he would be "uncomfortable" growing the automaker's
artificial intelligence and robotics efforts without having
about 25% voting control of the company, nearly double his
current stake.
    
    The Delaware judge ruled on Tuesday in favor of a challenge
to Musk's $56 billion pay package, which could affect board
decisions about his ownership. Musk also said on X he would be
fine with a dual-class share structure for Tesla. 
    
The time to create that structure was years ago, said James 
McRitchie, a private investor who filed the measure to move
Tesla to annual director elections. Currently its eight
directors have three-year terms with staggered election cycles,
making it harder for outsiders to pressure the company.
    
"They have to learn to share power with the rest of the world,"
McRitchie said of Tesla's leadership. "Corporations certainly
aren't democratic, but most are more democratic than he (Musk)
wants them to be," McRitchie said.
    
About 12% of S&P 500 companies had staggered boards in 2022,
down from about 57% in 2003.
    
Tesla did not respond to requests for comment.

The anti-harassment resolution was filed by a group including
the office of New York State Comptroller Thomas DiNapoli, who
oversees state retirement money, Swedish pension fund AP7, and
Nia Impact Capital. It asks the company to report annually on
its efforts to prevent harassment and discrimination and cites
issues such as a federal lawsuit over claims of racial bias at
its California assembly plant.
    
A similar resolution in 2022 won 47% of votes cast, but Tesla
apparently hasn't responded, said Gianna McCarthy, director of
corporate governance for DiNapoli's office. “Shareholders like
this type of proposal, they generally want this type  of
reporting," she said.
    
One change Tesla has made is a shift to an annual vote on the
pay of Musk and other top executives, based on shareholder
preferences at the 2023 meeting, rather than once every three
years, according to an Oct 10 Tesla securities filing.
    
Brianna Castro, senior director of research for proxy adviser
Glass Lewis, said investors likely would not favor changes to
give Musk more voting control.
    
Via e-mail she said that "I haven’t seen a situation like this
before, but I suspect that a CEO wanting more control over a
company, with the aim of diluting the potential voting power of
shareholders, would not be a reasonable justification for a
large grant of shares or other equity award types for many
investors."

    Tesla advertising for old people please
  
If Tesla were some other boring car company the most interesting
shareholder proposal might be one calling for the company to
create a new ad strategy. The company has famously relied on
word-of-mouth and social media according to the proposal from
investor Marvin R. McCreary.

But its median buyer is over 50 years old, and "the majority of
that age group notably prefers to get their news from television
rather than digital media," according to the proposal, which
cites research from Hedges & Co.
    
Tesla has asked the top U.S. securities administrator for an
assurance it can leave the measure off its forthcoming proxy
statement, on the grounds that it relates to "ordinary
business." The Securities and Exchange Commission has not yet
responded.       
     
    A Sierra Club Foundation reset
  
Another big corporate name facing a shareholder resolution this
year is Goldman Sachs. A measure submitted by the Sierra Club
Foundation asks the big Wall Street bank to review the risks and
opportunities "related to the environmental justice impacts of
its energy and power sector financing and underwriting," and to
make the results public.
    
Sierra Club Foundation officials say the measure is part of a
new strategy to focus on risk management, which they hope will
lead to more capital being reallocated to sustainable energy
investments. It's also a change from the last few years when
Sierra Club resolutions calling for lenders to wind down their
fossil-fuel financing failed to win much traction at Goldman or
other big banks.

Pedro Henriques da Silva, a new Sierra Club Foundation director,
said it didn't file similar resolutions at other major banks
this year because they have seemed more responsive in talks
about how to ensure their lending to energy projects minimizes
the risks to surrounding communities such as water pollution or
increased childhood leukemia rates.  
    
The goal is to get investors focused on risk and to avoid
partisan debates such as the value of "ESG" investing, he said.
"The climate movement doesn’t succeed without being centered on
environmental justice," he said. The foundation manages a little
over $200 million, he added.

A Goldman Sachs representative declined to comment.
    
    Company News 
Miner Rio Tinto  RIO.L  will buy power from a new solar farm in
Queensland, Australia as it seeks to green its aluminium
operations on the country's east coast and halve its direct and
indirect emissions by 2030.
    
Archer-Daniels-Midland Co  ADM.N  will delay paying performance
bonuses to some executives until its financial statements are
completed and audited, according to a staff memo seen by
Reuters.

Amazon  AMZN.O  and robot vacuum maker iRobot  IRBT.O  ended
their merger plans in the face of opposition from EU antitrust
regulators.
     
    On my radar 
  
Mark your calendars for the Reuters Events Responsible Business
USA conference to be held March 26-27 in New York, which will
feature remarks from C-suite leaders including the chief
sustainability officers of Pepsico, PEP.O  Google and
Walmart. WMT.N  Register here.   
    
Our latest Reuters Newsletter is "On the Campaign Trail," a look
at the 2024 U.S. federal and state elections including what is
shaping up to be the contest to lead the country between
President Joe Biden and former President Donald Trump - a
matchup many voters are not happy about. Sign up here.

 (Reporting by Ross Kerber; additional reporting by Marie
Mannes. Editing by David Gregorio)
 ((ross.kerber@thomsonreuters.com; (617) 412 0093;))