Tesla Motors Inc CEO Elon Musk intends to acquire SolarCity, but many doubt the soundness of the deal. Musk, however, brushed off all the doubts, and said that not only the idea is sound, but he has the support of all the board members. This doesn’t come as a surprise as Tesla has seven members on its board of which six are Musk insiders with SolarCity ties, notes Bloomberg
Musk’s board an echo chamber?
Tesla’s board includes – Musk brothers; Ira Ehrenpreis, a venture capitalist and SpaceX investor; Antonio Gracias, a director at SolarCity and at SpaceX; Steve Jurvetson, a venture investor and SpaceX director; Brad Buss, a former SolarCity chief financial officer and Robyn Denholm, the only woman on the board.
Musk is the biggest shareholder in SolarCity and Tesla Motors Inc , and is also the chairman of the solar firm, where his cousin, Lyndon Rive, is the CEO. Many have sued Musk for such close connections with the board.
A professor at Carnegie Mellon University, Vivek Wadhwa, said, “You can’t have a board that is just an echo chamber.” This person has been criticizing the board for long for lacking diversity. Changes would be made to the boardroom because of a Tesla-SolarCity combination, as per some Tesla shareholders.
Tesla board – should it be re-built?
Executive director of CtW Investment Group – Dieter Waizenegger – said the upcoming merger would provide an opportunity to rethink board’s structure. The group represents pension funds that hold Tesla shares. Waizenegger said the main issue is not the size of the board. “A bigger board is not necessarily a better board, if it is stacked with family and friends.”
CtW demands that the EV firm should add two independent directors, and rewrite rules in a manner that it won’t be possible for the immediate family members to serve concurrently. Musk and his brother Kimbal Musk concurrently serve the company. It also demands for a rule that would prevent a person from serving both as the chief executive officer and the chairman – something that Musk does at present.
A board with just seven members is too small and looks like one belonging to a fledgling start-up, believe Charles Elson, head of the John L. Weinberg Center for Corporate Governance at the University of Delaware. CEO’s job should be separated from that of the chairman according to Elson. “The person being monitored by the board shouldn’t be chairing it.”
Wadhwa recommends for more women and people from foreign markets, where Tesla Motors Inc does business. As per him, Tesla is similar to Silicon Valley tech firms, where “boards are basically boy’s clubs.”
In pre-market trading today, Tesla shares were in the green, Year to date, the stock is down over 14% while in the last one-year, it is down almost 11%.
