Following an offer by Tesla Motors Corp for the energy services provider SolarCity, a prominent investor group sounded a warning that Elon Musk’s role as both CEO and chairman of Tesla could cause significant conflict of interest.
The South African born business magnate is also the chairman of SolarCity and the biggest shareholder, leading to calls from CtW Investment Group to add at least two independent directors to the Tesla board.
CtW referred to the issue as a “deep-rooted governance problem” and offered a five step plan as a solution which includes clearly defining, if not totally separating, Musk’s dual role in the firm.
They will also insist that a specialized committee be formed by independent and unbiased board members to look over the SolarCity deal before any major decision is reached. Also, a proposal was put forward to adjust the power structure of the board so that stockholders would have some input as to the election of directors on an annual basis.
They also want a top to bottom revision of governance rules to stop immediate family members of directors serving back to back. That particular reform is clearly aimed at Tesla board member Kimbal Musk, chief executive of Medium Inc., who is Elon Musk’s brother.
The Tesla approach for SolarCity is thought to be worth nearly three billion dollars as an all-stock offer.
CtW Executive Dieter Waizenegger wrote in an email that he and other investors have been “actively opposed to the proposed SolarCity agreement which has only underlined the faulty governance structure at Tesla.” He wrote, “We are convinced the power hierarchy at the company must be reformed in order to ensure stockholders interests are priority.”
Some observers think CtW are getting too involved and should trust the firm’s leaders. Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management said, “As far as stockholders are concerned, Tesla have laid out a convincing argument that SolarCity is the right acquisition for the company and will generate both financial and product benefits for everyone involved. They will ultimately have a vote in the process so they should look through the proposal carefully.”
Shares in Tesla dropped nearly 15 percent 24 hours after Musk, who owns around 20 percent of both companies, announced the bid.
CtW argues that too many of the SolarCity board are directly involved with Tesla at an executive level and called for special committees on both boards to review the bid.
