Just before Tesla’s annual shareholder meeting in June, stockholder Jing Zhao has submitted a proposal to remove the board’s chairman. He wants Elon Musk to be replaced by an independent director. Since 2004, Musk, the chief executive officer at Tesla, has been chairman of the board. Generally, Tesla’s shareholder’s meeting begins with the official items, which this year includes ratifying Tesla’s independent registered public accounting firm, voting to reelect 3 board members, and voting on two shareholders proposals. After that, Musk comes for a quick presentation on the stage and then answers questions from shareholders.
Proposal by Jing Zhao
Zhao wrote in his proposal that the current leadership structure in which the positions of Chairman and CEO are held by one provides an effective leadership for Tesla at an early stage. But, in this highly competitive and rapidly changing technology industry, it becomes more and more difficult to oversee Tesla’s business and senior management, which is resulted by the combining positions of CEO and Chairman. Zhao, holder of 12 shares of the company’s common stock also noted Musk’s positions at SpaceX and SolarCity, and the way in which involvement of Musk could lead to conflicts ahead in the future. But, the likelihood of this happening is equal to none. And unsurprisingly, the board has asked shareholders to vote against the proposal.
Also, the board has already expressed its opposition by recommending a vote against the proposal made by Zhao. The board said in its statement that Tesla’s success would not have been possible without Musk in charge of both the board and the company itself.
Statement by the board
“The Board believes that the Company’s success to date would not have been possible if the Board was led by another director lacking Elon Musk’s day-to-day exposure to the Company’s business. In light of the significant future opportunities for growth and the careful execution needed in order for the Company to achieve it, the Board believes that the Company is still best served by Mr. Musk continuing to serve as Chairman. Moreover, the role of the Lead Independent Director protects the Company against any potential governance issues arising from a non-independent director serving as Chairman. This position is vested with broad authority to lead the actions of the independent directors and communicate regularly with the Chief Executive Officer. Additionally, the Company now has seven independent directors following the addition of two additional independent directors in July 2017. The Board believes that the broad authority of the Lead Independen t Director and the presence of six other independent directors ensures that the Board acts independently. This current Board structure also is consistent with majority practice at large public companies: according to the 2017 Spencer Stuart Board Index, 72 % of companies in the S&P 500 do not have an independent board chairman.
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The proponent acknowledges that a combined Chief Executive Officer and Chairman is an effective form of leadership for an early-stage company, until it faces increased competition and rapid technological changes. The Board believes that it is precisely during times when a company must quickly adapt to constant change and outside pressures that Board leadership needs to be lockstep with the Company’s operations. Our achievements to date notwithstanding, the Company is still at a point in its development where we must execute well in order to realize our long-term goals, and separating the roles of Chief Executive Officer and Chairman at this time would not serve the best interests of the Company or its stockholders.”
At the meeting on June 5, 2018, shareholders will vote in the following matter at the Computer History Museum located in Mountain View, CA.