Wednesday, 28 Feb 2024

Tesla Changed a Deadline for Investor Proposals, Angering Activists

Tesla investors will have fewer opportunities to express discontent with management at the company’s annual meeting, which is taking place Tuesday in Austin, Texas, because of what some shareholders said was a deliberate attempt by the automaker to suppress dissent.

In October, Tesla moved up the meeting from August to May and gave shareholders two fewer months to file proposals. Tesla announced the new Dec. 22 deadline for proposals at the end of a 60-page regulatory filing, and most activist investors overlooked the change.

Tesla and its chief executive, Elon Musk, have often been criticized by activist investors on a variety of issues, including allegations of racial discrimination at its California factory, the company’s hostility to labor unions and whether its board is doing a good job overseeing management. Mr. Musk and Tesla’s board members have dismissed complaints about discrimination and pointed to the company’s strong profits and sales growth as evidence that it is performing exceedingly well.

At several recent annual meetings, the activists have introduced proposals to push the company to consider making changes — most of which have failed to garner enough support. This year, only one shareholder proposal made it onto the agenda. Filed by an investor from Iceland, that proposal asks Tesla to come up with a plan to replace Mr. Musk if he quits or can no longer do his job.

Tesla did nothing wrong in moving up the deadline, according to a decision by the Securities and Exchange Commission. But some activist shareholders saw it as a deliberate attempt to squelch their efforts to make the company improve its treatment of employees and to add board members who are more willing to stand up to Mr. Musk.

“It was really sneaky,” said Kristin Hull, the chief executive of Nia Impact Capital, a firm in Oakland, Calif., that has previously challenged a Tesla policy requiring employees to resolve complaints of discrimination before an arbitrator rather than in court.

Tejal Patel, the executive director of SOC Investment Group, which represents the interests of labor union pension funds, said the deadline change was “indicative of how Tesla treats its shareholders.”

Tesla did not respond to a request for comment.

Some investors saw signs that Mr. Musk was responsive to some of the shareholder criticism when he announced last week that he would name Linda Yaccarino as chief executive of Twitter, the social media company that Mr. Musk acquired last year. Hiring Ms. Yaccarino could free Mr. Musk to spend more time managing Tesla. Investors have complained that Twitter has distracted Mr. Musk from Tesla at a time when the carmaker faces slackening demand and increased competition, which have led it to cut prices.

Nia Impact and SOC were among eight investment funds and activist groups that last month called on Tesla shareholders to reject the nomination of J.B. Straubel to the company's board. They said Mr. Straubel, who was a senior executive at Tesla for years before leaving to start a battery recycling and materials company in 2019, “is clearly a company insider and not an appropriate choice for a board that already has a dearth of independence.”

Glass Lewis, a firm that advises institutional shareholders, also urged owners of Tesla stock not to vote for Mr. Straubel, saying his election “would only exacerbate a longstanding lack of board independence at Tesla.”

In the past, some proposals by activist investors have won significant support, and last year, one passed despite opposition from Tesla’s board. That measure allowed shareholders to nominate directors, though none did so this year.

Mr. Musk owns 13 percent of Tesla, which means that stockholder proposals have to amass significant support among other shareholders to pass.

But activist proposals, most of which are not binding and simply call on the company’s board and management to consider making changes, would have had a better chance this year after Mr. Musk sold some of his stake in Tesla to finance his purchase of Twitter.

Tesla also faces criticism from Washington. A group of eight senators led by Richard Blumenthal, a Connecticut Democrat, called on Tesla this month to stop requiring employees and car buyers to resolve complaints before arbitrators.

The practice, the letter said, “prevents workers and consumers from bringing discrimination claims and consumer safety complaints to court — effectively shielding the company from both accountability and public scrutiny.”

Some activist shareholders said they planned to try to introduce measures during the meeting, which starts at 3 p.m. Central time.

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