Tesla Chair’s Re-Election Opposed by Adviser Over Share Pledging

Tesla Inc. investors should vote against the re-election of board chair Robyn Denholm because directors are being highly compensated and pledging significant amounts of stock for personal loans, the world’s largest proxy adviser said.

Opposing Denholm is warranted because Tesla has failed to give reasonable rationale for consecutive years of high director pay, Institutional Shareholder Services Inc. said in a report. The firm also flagged “significant concerns” about the increase in the number of shares Chief Executive Officer Elon Musk and other board members have borrowed against.

Robyn Denholm

Photographer: Brendon Thorne/Bloomberg

“The increase in pledging activity at the company with the absence of a clear rationale and lack of a more robust anti-pledging policy call into question the audit committee’s ability to effectively oversee risk,” ISS researchers led by Robert Kalb wrote in the report. Denholm, 56, chairs the audit committee.

Related: Musk’s Personal Borrowing Climbs Even With Tesla Stock Surging

The recommendation against Denholm is a setback to Tesla following internal and external efforts to improve the company’s governance. Last year, the carmaker announced several longtime directors who are close to Musk would leave the board, and members’ terms would be shortened to allow shareholders to vote more regularly on their re-election. In late 2018, Musk agreed to relinquish the chairman role to Denholm as part of a deal with the Securities and Exchange Commission.

The portion of stock Tesla directors and executives have pledged as collateral climbed 36% from a year ago to about 4.9 million shares, ISS said. That amount is “excessive” and represents more than 10% of outstanding stock, the researchers wrote.

“Pledging of company stock by directors or executive officers can pose a risk to the investments of outside shareholders,” the report said. If they’re forced to sell a significant amount of shares to meet a margin call, it “may negatively impact the company’s stock price and may violate insider trading policies.”

Denholm is one of two women on Tesla’s 10-member board. She’s been a director since 2014 and was appointed chair in November 2018 following an agreement the SEC reached with the company and Musk over his tweets months earlier about taking the carmaker private.

She is also a member of the board’s compensation committee, which ISS criticizes over how much money was awarded to directors last year. The company paid $7.4 million to Kathleen Wilson-Thompson, $5.9 million to Larry Ellison, $2.7 million to Denholm and $1.2 million to Steve Jurvetson.

“These amounts are considered to be significant outliers” compared with directors at other companies, ISS researchers wrote.

Tesla’s annual meeting is scheduled for July 7. Shareholders who rely on their own judgment or research have voted with the company and in opposition to proxy advisers in the past.

To contact the reporter on this story:
Dana Hull in San Francisco at dhull12@bloomberg.net

To contact the editors responsible for this story:
Craig Trudell at ctrudell1@bloomberg.net

Melinda Grenier

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