Tesla (TSLA 2.70%) hosted its annual shareholder meeting earlier this week, where investors voted on various proposals submitted to the company and even got a glimpse of the Model Y. Four of the proposals were management proposals, while the fifth was a shareholder proposal submitted by the Connecticut Retirement Plans and Trust Fund (CRPTF), which owns approximately 45,500 shares (valued at approximately $16.7 million based on current prices).
CRPTF was pushing for Tesla's board of directors to stand for election on an annual basis, arguing that this would improve corporate governance and accountability. Tesla currently has a staggered board where directors serve three-year terms. The only three directors that were up for election this year were Elon Musk, Robyn Denholm, and Steve Jurvetson. As expected, they were all re-elected, according to the 8-K that Tesla filed today.
Image source: Tesla.
Tallying the votes
Tesla's board had recommended in the proxy that investors vote against the shareholder proposal, arguing that the staggered structure of the board better allows the company to focus on long-term goals "without being distracted by special interests that seek only short-term returns." The board provided some examples:
Our staggered Board structure has facilitated a number of key decisions which might have appeared counter-intuitive to some, but which have set up the Company to achieve long-term success. Some examples include the Company's decisions to (a) manufacture all-electric vehicles (EVs) from the ground up rather than being a mere supplier of EV components, (b) establish an international network of our own stores, service centers and Supercharger stations despite regulatory hurdles and the significant capital outlay required to do so, (c) build Gigafactory 1, the largest lithium-ion battery factory in the world, so that we can scale most effectively, and (d) acquire SolarCity so that we could create the world's first and only vertically integrated sustainable energy company.
During the meeting on Tuesday, General Counsel Todd Maron was able to declare that shareholders voted in line with Tesla's recommendations on all proposals, which is to say the shareholder proposal failed. After all, the vast majority of shareholders submit their votes ahead of time by proxy. But the 8-K gives a detailed breakdown of the votes that were cast regarding the proposal (only 30% of votes cast voted on the proposal):
|
Proposal 5 |
Votes |
|---|---|
|
For |
32.7 million |
|
Against |
74.7 million |
|
Abstained |
554,000 |
|
Broker non-votes |
33.9 million |
Data source: SEC filings.
It's worth noting that the two largest proxy advisory services, Institutional Shareholder Services and Glass Lewis, supported the proposal, as it could have facilitated greater board independence and accountability. Tesla continues to face mounting criticism that its board lacks independence, considering the fact that many directors have personal and/or professional connections to Musk.
Rising unrest?
CRPTF is far from the only institutional investor seeking annual director elections; five other investors, including the California State Teachers Retirement System and CtW Investment Group, among others, have been pushing for the same thing. Musk took to social media in April to take jabs at his critics, facetiously recommending investors buy Ford shares instead.
Besides, I already said we'd add more independent members during SCTY merger. Will announce soon, but this group has nothing to do with it.
— Elon Musk (@elonmusk) April 12, 2017
At the time, Musk said Tesla would be adding two independent directors in the near future.
While the shareholder proposal failed, the fact that it was able to garner 32.7 million votes in favor is meaningful because it shows increasing unrest among investors. Of course, it's still pretty hard to challenge Musk, as he wields nearly 36.2 million shares (and votes), or 22% of all shares outstanding. Still, more independent directors, whenever Tesla adds them, will be a welcome announcement.
