Activist investors ask SEC to probe Tesla over plan to downsize board

Elon Musk, who appeared at an event in New York in early May, is being actively called upon to set up his “end-to-end” electric vehicle manufacturing facilities in resource-rich Indonesia.

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Active Investor SOC Investment Corporation asked federal financial regulators to investigate Tesla over plans to shrink its board size from eight to seven and close a position for an independent director.

Tesla announced in its preliminary authorization filing in June that Oracle Founder Larry Ellison has no plans to run for re-election at this year’s annual shareholder meeting, nor does the company plan to nominate anyone new to replace him. The investor group urged the Securities and Exchange Commission to deny that filing, according to a letter to the agency shared with CNBC.

Formerly known as CtW Investment Group, the SOC argued that Tesla’s plans and Elon Musk’s continued use of social media to publish material business information without the prior approval of securities attorneys, violates the terms of the settlement agreement Tesla and Musk signed with the SEC. in 2018.

The SOC’s director of research, Rich Clayton, told CNBC this week that his team has long been concerned about “the lack of independence on Tesla’s board.” He mentioned Tesla’s 2016 acquisition of SolarCity, a company founded by Musk’s first cousins, funded by Musk, and where he serves on the board.

“The Board of Directors has repeatedly made decisions that are not in Tesla’s best interests but motivated by Elon Musk’s personal interests,” Clayton told CNBC.

“We think other long-term shareholders should be worried about the proposed changes to board composition,” he said. “Tesla’s board of directors was not willing to satisfy shareholders by doing what shareholders say they want. They can evade what shareholders propose and vote on.”

The settlement

Independent Board of Directors

In a letter to the SEC this month, SOC head of research Rich Clayton wrote:

“Ample evidence, including statements from CEO Elon Musk, indicates that, contrary to the requirements of the consent decree, the Tesla Board of Directors has not implemented effective oversight or established a credible pre-clearance process for Mr. Musk to follow when making potentially important public statements about Tesla.”

He added, “As a result of these instances of non-compliance with the consent decree, Tesla shareholders have experienced dramatic fluctuations in the value of their shares, largely stemming from exactly the same type of statement. Mr. Musk’s optimism. The SEC will take action against Mr. Musk and Tesla from the start.”

The SEC has opened multiple investigations into Elon Musk and Tesla regarding possible insider trading, disclosure about his Twitter shares and his compliance with the settlement, according to mail between the agency and Tesla and court documents.

Musk has also accused the SEC of crushed its freedom of speech through the settlement and its investigation, and filed an appeal to get rid of at least some of the terms of the settlement.

Tesla and Musk are represented by Alex Spiro in the SEC matter. They did not respond to a request for comment when presented with a letter from active investors by CNBC.

The SOC Investment Group works with union-sponsored retirement funds that have approximately $250 billion in assets under management. The group often submits shareholder resolutions related to corporate governance and social responsibility. They will notify regulators, other shareholders and pension fund managers when companies in their portfolio are behaving in a manner that appears irresponsible and potentially harmful. negative impact on the long-term financial health of the company.

It was the same group that helped force McDonald’s shareholders to vote for an independent civil rights review of the fast food giant after McDonald’s was hit by several anti-discrimination and anti-harassment lawsuits in the past. previous years.

Although Tesla is facing numerous lawsuits alleging racial discrimination against Black employees, the SOC Investment Group is not recommending Tesla conduct a racially equitable audit at this time.

Clayton explained, “The lack of independence we’ve seen with the Tesla board makes it clear to us that it will be very difficult for this board to do the right thing in resolving any issues.” insider, serious incident and allegation.”

Read the letter here.

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