The Chair of Tesla, Robyn Denholm, has called on the car manufacturer to scale what she’s referred to as “Mount Everest”, as they face votes from their shareholders on a potential move of the company to Texas and a controversial $56bn (£) compensation plan for Elon Musk. Denholm, an Australian accountant who has been chairing Tesla since 2018, also countered allegations of being excessively amenable to Elon Musk, describing them as ‘nonsense’.
Denholm faces struggles to get shareholders’ approval ahead of a crucial annual meeting scheduled for 13th June. This will be seen a vote of confidence in Musk’s eccentric leadership. He currently stands as the world’s third-wealthiest individual.
Denholm, aged 60, along with the rest of Tesla’s board are trying to convince their investors to back the contentious compensation plan, which was earlier rejected by a court in Delaware in January. Following this judgement, Musk expressed intentions to leave Delaware and reincorporate Tesla in Texas.
In the run-up to the voting day, Denholm spoke to the media at the end of a fortnight long US investor roadshow, saying that they’re in the early stages of the campaign and will be meeting with the shareholders up until the vote, underscoring the importance of this step not just for Tesla, but for corporate America as well.
The rejected compensation plan in question would have increased Musk’s stake from just below 13% to over 20%. Musk has made it clear that he may consider developing artificial intelligence products outside of Tesla, if not allowed to increase his stake.
Denholm remained non-committal over Musk’s intentions if the vote goes against him but remained confident of his commitment to Tesla.
The friction with Delaware started in February when a judge nullified a stock option package awarded to Musk in 2018, that had grown to a staggering $56bn – the largest in the US corporate history -, following the achievement of some ambitious growth milestones by Tesla.
Although Tesla’s investors had largely supported these proposals when they were initially presented in 2018, the court ruled that Tesla’s board did not act in the best interests of its shareholders. The court also censured the board directors, including Denholm, for their passive roles while criticising Denholm for her negligent approach to her supervision duties.
Responding to the Delaware judgement, Tesla presented proposals to shift their state of incorporation to Texas and revalidate Mr Musk’s compensation. This will not directly override the court’s verdict, but the auto manufacturer is hopeful that it will be a significant factor in any forthcoming legal disputes.
A previous chief financial officer at the telecommunications company Telstra, Ms Denholm, referred to the judgements as utter nonsense. Ms Denholm, now utilising social media, reassured shareholders that she is advocating for their rights, combatting a Delaware Court that dares to question their determination. She emphasised the critical nature of compensating Mr Musk fully to keep him driven and reward him for generating over 1,000 per cent return in five years.
Any decision regarding the new remuneration vote requires a simple majority, excluding the shares held by Musk and his sibling, Kimbal. Conversely, relocation to Texas is a more challenging task, necessitating a majority of all outstanding shares with the uncast shares being counted as against.
Ms Denholm discussed the magnitude of the challenge, comparing it to climbing Mount Everest, as it’s tough to ensure a 50% vote from shareholders. Approximately one-third of Tesla shares are owned by retail investors. Not only does she need to convince them, but she also needs to persuade institutional shareholders who turned down the 2018 compensation package. This includes the largest external owner, Vanguard, who now must reconsider their stance as Mr Musk’s payment is no longer a theoretical situation.
Ms Denholm confirmed that the feedback from the investors she had interacted with was positive towards the remuneration plan, praising its effectiveness in driving shareholder value. Additionally, she highlighted the initial perception of the plan as excessive ambition, especially against targets like reaching a $650 billion market capitalisation from its valuation of $59 billion at that time. Despite the huge target, Mr Musk still managed to drive the company to its peak value of over $1 trillion, despite not receiving anything if the valuation fell short of $100 billion.
Ms Denholm remarked that for a personality like Elon, truly lofty objectives were necessary to drive his concentration towards expanding Tesla. Musk operates a number of businesses such as SpaceX, Neuralink, and the Boring Company. In 2022, he also made a significant acquisition — Twitter, which he later rebranded as X, purchased for a staggering $44 billion. – Copyright The Financial Times Limited 2024.