Green Technology

Elizabeth Warren Asks SEC To Investigate Tesla Board


For those who have followed Tesla for long, or have followed almost any notable stories regarding the Tesla board of directors, you are for sure familiar with claims that the Tesla board and Elon Musk are far too close and that there’s not enough independence on the board. It’s commonly claimed that the board just does whatever Elon Musk wants. Now, US Senator Elizabeth Warren is pushing for stronger action on this matter.

Senator Warren has sent a letter to the Securities and Exchange Commission (SEC) asking that the SEC investigate the board, indicating concern about “conflicts of interest, misappropriation of corporate assets, and other negative impacts to Tesla shareholders” specifically related to Elon Musk’s Twitter acquisition and activities in the months that followed.

It’s a 9-page letter, so I won’t quote it all here. But I’ll pull out a few quotes:

“The Board’s inaction and inadequate disclosures, and the close relationships of several Board members to Mr. Musk, raise questions about the effectiveness of their corporate governance and potential violations of securities laws.”

“Despite hiring Ms. Yaccarino [as CEO of Twitter], he is likely to retain ‘significant control’ over the company and intends to continue overseeing core functions of the business. Given the concerns about the actions by Mr. Musk and the Board, I ask that the SEC conduct a review to determine if they have complied with relevant securities laws.”

“In December 2022, in a letter to Tesla’s Chair of the Board of Directors, Dr. Robyn Denholm, I expressed my concerns about the corporate governance issues raised by the structure of Mr. Musk’s deal to buy Twitter and his actions after becoming CEO, including:

    • The possible misappropriation of Tesla resources by Mr. Musk’s funneling of ‘more than 50 of his trusted Tesla employees’ to work on his Twitter takeover, including Tesla’s Chief Information Officer and other senior staff. This use of Tesla employees raised obvious questions about whether Mr. Musk appropriated resources from a publicly traded firm, Tesla, to benefit his own private company, Twitter. This would potentially violate Mr. Musk’s legal duty of loyalty to Tesla and trigger questions about the Board’s responsibility to prevent such actions, and may also run afoul other ‘antitunneling’ rules that aim to prevent corporate insiders from extracting resources from their firms.
    • Inevitable conflicts of interest arising from, for example, Twitter’s reliance on advertising revenue from automobile companies that are in direct competition with Tesla, including Audi, Chevrolet, Ford, GM, Jeep, and Volkswagen. As the owner of Twitter, Mr. Musk could decide to run the company to maximize badly-needed revenue, even if that includes great deals for Tesla’s competitors and potential injury to Tesla. Alternatively, Mr. Musk could run Twitter to benefit Tesla through favorable algorithms or free advertising. These concerns have only grown since Tesla recently announced its intention to begin advertising, choosing to release its first ever ad through Twitter.”

“Concerns about Mr. Musk’s actions as Tesla CEO have only increased in recent months. In April 2023, a group of 17 major Tesla investors wrote an open letter to Tesla’s Board expressing concern ‘that the Board of Directors is failing to adequately represent the interests of Tesla’s shareholders.’ The letter notes that Mr. Musk ‘appears to be distracted or overly focused on other ventures’ and the Board’s ‘meager oversight’ over his behavior is ‘jeopardizing [Tesla’s] long-term value.’ Moreover, the letter notes the reported ‘close personal relationships’ between Mr. Musk and several members of Tesla’s Board, as well as Board members’ ‘exceptionally high compensation,’ expressing concern about the Board’s ‘objectivity, independence, and ability to prioritize the needs of Tesla and its shareholders.’”

If you want to read more, you can check out the whole letter. The overall point, though, is that a US Senator is pushing for the SEC to look into the relationship between Elon Musk and the Tesla board, especially as it concerns Elon Musk’s running of Twitter. We’ll see what comes of it.


 


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