This week the soundtrack to the Laundromat is Shadows by Dawn of Correction – more on that later. Nordic investors with misgivings towards Tesla regarding the ‘S’ in ESG may wish to turn their attention to the ’G’ ahead of the US firm’s AGM on 13 June 224. The electric vehicle (EV) and battery manufacturer was already at loggerheads with Nordic trade unions late last year, and its 2024 proxy statement includes a Board recommendation to vote against a stockholder proposal regarding the adoption of a freedom of association and collective bargaining policy. However, the spotlight is now firmly on the ‘G’ of governance, as CEO Elon Musk battles to regain control of the executive remuneration process.
It is common to ask job applicants what remuneration package they expect. In Musk’s case he would calmly reply: “$50 billion plus.” The Tesla CEO is still fuming after having been denied such a package by a Delaware court at the end of January this year. The 10-year pay deal that Musk had agreed with the Tesla board in 2018 consisted of share-based compensation contingent on the company reaching various profitability and capitalisation targets. This is where Richard Tornetta, heavy metal drummer in the aforementioned Dawn of Correction decided that enough was enough. As the owner of nine (9) Tesla shares, Tornetta said: “Hold my drumsticks” and stepped out of the rehearsal studio to file a lawsuit against the company affirming that the pay package was completely disproportionate and unfair to shareholders. It took a while for the case to be heard, hence judge Kathaleen McCormick’s ruling only this year that the ‘unfathomable sum’ was to be rejected. “Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” said McCormick in her ruling.
“Never incorporate your company in the state of Delaware,” responded Musk on the platform-formerly-known-as-Twitter. The brouhaha over what would have been the largest ever corporate pay package in US history involved some serious concerns about the governance structure within Tesla. McCormick questioned the independence of Tesla board members, which include Musk’s brother Kimbal and media tycoon Rupert Murdoch’s son James. Musk’s personal divorce lawyer Todd Maron and now-ex Tesla General Counsel was criticised by judge McCormick as being representative of what she called the incestuous relationships the CEO had with the people who were tasked with representing the company’s best interests. McCormick reported that Maron was moved to tears while speaking of his admiration for Musk during the proceedings.
Special Committee to the rescue
Agenda point number 3 on Tesla’s latest proxy statement reveals that Musk has now overcome his chronic allergy to all forms of corporate taxation and is pushing to ‘redomesticate’ the company from Delaware towards the presumably billionaire-friendlier judges of Texas. Agenda item number 4 is the following: “To ratify the 100% performance-based stock option award to Elon Musk that was proposed to and approved by our stockholders in 2018.” But what has Musk done in the meantime to allay shareholders’ concerns over Tesla’s governance procedures? To quote from the proxy statement: “Proposal Three and Proposal Four are being presented for votes of the Company’s stockholders following the recommendations of a special committee of the Board (the “Special Committee”) and the Board.” Excellent news.
So, who are the wise people sitting on the Special Committee? Pope Francis? The Dalai Lama? Taylor Swift? Disappointingly, and with all due respect to the individual concerned, the so-called committee is indeed one single, lonesome individual. The proxy statement reads: “Kathleen Wilson-Thompson is the sole member of the Special Committee.” Wilson-Thompson was previously Global Chief Human Resources Officer for retail pharmacy chain the Walgreens Boots Alliance. The Laundromat doubts that any typical pharmacists’ pay demands were ever remotely close to Musk-sized.
Pay and governance aside, the Tesla board proposes to reject other sensible sounding stockholder proposals regarding anti-harassment and discrimination reporting, linking sustainability metrics to executive compensation, and committing to a moratorium on sourcing deep-sea mined raw materials, all of which should be ringing ESG alarm bells. The Laundromat will credit Tesla and Musk with making EVs sexy and thus helping to wean a few committed petrolheads off fossil fuels. However with a CEO that feels he cannot possibly run the company while holding less than 25% of its shares, is perpetually distracted by his Mars rockets and ongoing annihilation of Twitter, will not countenance unionisation or taxation, and oversees the design and production of something as juvenile and imbecilic as the Cybertruck, it might be time for investors to reconsider whether this EV company really deserves a place in a long-term, sustainable portfolio.
