Tesla shares fell nearly 4% Monday after a Wall Street Journal report shed light on Elon Musk’s unusually close personal and financial ties with members of the carmaker’s board of directors, fueling concerns on Wall Street about a lack of real oversight on one of the world’s most powerful CEOs.
The revelations by the Journal come less than a week after a Delaware Chancery Court judge struck down Musk’s unprecedented, multibillion-dollar pay package, calling the board’s approval process “deeply flawed” because of how many people involved were “beholden” to Musk, and bringing renewed scrutiny to his deep relationships with ostensibly independent board members.
Throughout her ruling, Judge Kathaleen McCormick noted that the people who were supposed to negotiate Musk’s pay on Tesla’s behalf were, in fact, far from independent. Musk has extensive ties with board members, including Ira Ehrenpreis, who personally and through his business has invested “tens of millions of dollars” in Musk-controlled companies. Ehrenpreis is also a close friend to Kimbal Musk, Elon’s brother, who is also a Tesla board member. Ehrenpreis attended Kimbal’s wedding in Spain, and also invested in Kimbal’s restaurant company, The Kitchen Group.
Another member of the compensation committee, Antonio Gracias, has both business and personal ties with the CEO. McCormick noted that Gracias and Musk had spent Christmas together, and even vacationed with Musk’s family “on a regular basis,” taking numerous vacations with Musk’s cousins, as well.
The relationship is not strictly limited to vacations, however, with Gracias having acquired “dynastic or generational wealth” from having invested in Musk’s companies.
In another instance, the judge emphasized the role of Tesla’s general counsel Todd Maron — who was previously Musk’s divorce lawyer — in advising Tesla’s board and compensation committee. Maron was “totally beholden to Musk,” McCormick wrote in her ruling last week, adding that Maron’s admiration for Musk “moved him to tears” during both his deposition and in trial testimony.
Maron’s team prepared “an aggressive timeline for approving a compensation plan,” McCormick wrote in her more than 200-page ruling. The break-neck speed of the process “reflected a reckless approach to a fiduciary process.”
Robyn Denholm, the Tesla board chair, doesn’t appear to have had any personal relationship with Musk outside of her service on the board, McCormick wrote. Though the vast majority of Denholm’s wealth — including what Denholm called a “life-changing” $280 million sale of Tesla options — came from her position as a board member.
The Journal notes that the Nasdaq exchange, where Tesla trades, requires that an independent director can’t be an employee, a family member or someone whose relationship “would interfere with the exercise of independent judgment.”
Tesla didn’t immediately respond to CNN’s request for comment.
Tesla’s stock is down nearly 30% so far this year. Shares took a beating last month after Tesla leadership told investors on an earnings call that sales growth this year “may be notably lower,” and that Musk believed Chinese carmakers, absent trade barriers, “will pretty much demolish most other car companies in the world.”
Monday’s selloff was also tied to a decision by the brokerage Piper Sandler to cut its Tesla stock price target. The firm said it now expects deliveries this year to come in below 2 million, suggesting Tesla’s growth would be flat.
“The crony non-independent board stories are not new,” longtime Tesla critic Gordon Johnson, CEO of GLJ Research, told CNN. “The big problem for Tesla, is that the underlying growth and margin story for their business is imploding.”
The Journal story, coming on the heels of the Delaware ruling, “gives wealth managers a reason to exit,” Johnson added.
“This idea that [Tesla] is a tech company that does better than the rest of the auto industry has been thoroughly debunked … I think that the market is coming to that realization more every day, and Elon Musk’s shenanigans are helping the market to increasingly come to that conclusion.”
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