The world's largest proxy advisor, Institutional Shareholder Services, has issued a report recommending that Tesla (NASDAQ:TSLA) investors vote against board Chair Robyn Denholm's reelection.

ISS takes issue with her role on the board's compensation committee, which has awarded high payouts to the board. It also expressed concern that Tesla board members and CEO Elon Musk have been increasingly borrowing against their Tesla shares. 

The recommendation calls into question the effectiveness of Tesla's efforts to improve its governance after the ouster of Musk as board chair in 2018. 

A red Tesla Model 3 with a cityscape in the background.

Image source: Tesla.

"Significant concerns"

The debate over Tesla's governance began on Aug. 7, 2018, when Musk tweeted that he had "secured" the funding to take Tesla private at $420 per share. The SEC filed a lawsuit in response, accusing Musk of securities fraud. He settled the suit in part by agreeing to step down as chair.

Denholm, already a Tesla board member, took over the position from Musk, but questions about governance remained. In 2018, all but three of Tesla's board members were compensated at least $6.8 million. The other three received big 2019 compensation packages of $1.2 million, $5.9 million, and $7.4 million, which ISS criticized as "significant outliers" compared with what directors at other companies receive.

ISS also noted that the amount of shares Tesla's directors and executives have pledged as collateral has climbed by 36% over the past year, to nearly 5 million shares, more than 10% of Tesla's total outstanding share amount. If a significant number of those shares had to be sold to meet a director's obligations, it could "negatively impact the company's stock price and may violate insider trading policies."

The electric carmaker's annual meeting, at which the election of directors will take place, is slated for July 7.

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