As the drumbeat for accountability for Tesla's Board of Directors continues to get louder, more and more scrutiny is being placed on the details surrounding the Board's relationship with the company. The latest detail which is under scrutiny, a $34,347 payment to a company founded by Tesla's lead independent director Antonio Gracias, must have raised enough of a concern for the company to feel that it needed to explain itself.
Bloomberg reported this morning that Tesla paid this money to Valor Management, Gracias' company, for spending more than 100 days at Tesla's factory and for "numerous improvements that led to increased Model 3 production rates".
A private equity firm linked to a Tesla Inc. director spent more than 100 days at the carmaker’s battery factory late last year to help increase Model 3 sedan production, according to a filing vouching for its beleaguered board.
Valor Management Corp., whose founder and chief executive is Tesla’s lead independent director Antonio Gracias, contributed to “numerous improvements that led to increased Model 3 production rates,” Tesla said in the filing Tuesday. The carmaker said it paid Valor $34,347 to reimburse for travel, equipment and “budget lodging” near the Nevada factory.
Tesla had previously said in its proxy statement that this money had been paid for "consulting services related to 'operational optimization'". Obviously, with the increased scrutiny on Tesla's board and people combing through the proxy statement for every last detail, this explanation wasn’t satisfactory enough as written in the initial proxy. This prompted Tesla to file a Form DEF14A, an amendment to the proxy, to offer more detail. Despite Tesla stating it was an arm's length transaction, the same filing also notes that board member Gracias was "personally involved" in having his companies team help.
The filing elaborates on what was a vague disclosure in Tesla’s proxy statement released April 26, which described the payment to Valor as being for consulting services related to “operational optimization.” Tesla said then that $34,347 was an immaterial cost and that the services were “provided on an arm’s length basis to Tesla.” The board concluded that it didn’t impede Gracias from making independent judgments as a director.
The Tuesday filing said that Gracias supported and was personally involved in having Valor’s senior operations team help Tesla at the gigafactory near Reno, Nevada.
Obviously, not enough operational efficiencies were found to make Tesla hit its production target of 5000 vehicles per week.
While the sum of money is relatively small, this goes to show that the temperature on the Tesla pressure cooker has risen significantly. This detail would have likely been glazed over or outright ignored in proxies of past years – this year, it doesn’t look like anything is going to get past the scrutiny of those challenging Tesla's existing board.
A couple weeks ago, we reported about CtW waging a proxy fight to oust most of Tesla's board.
CtW Investment Group, which is working with $250 billion in pension funds, many of which are Tesla investors, has pushed for a long overdue ousting of some of Tesla's most unqualified and possibly conflicted board members. A Bloomberg article out on Wednesday morning wrote:
An activist firm representing Tesla Inc. shareholders has excoriated the electric-car maker, claiming that it’s veered off the path to profit and urging a major overhaul of the Elon Musk-led board.
CtW Investment Group, working with union pension funds that are Tesla investors managing more than $250 billion, opposes the re-election of three board members who are up for votes during Tesla’s June 5 annual meeting. The firm calls for shareholders to cast ballots against Antonio Gracias, a private-equity investor and Tesla’s lead independent director; Kimbal Musk, Elon’s brother; and James Murdoch, CEO of Twenty-First Century Fox Inc.
Poor accountability and lack of governance at Tesla have been issues raised by us throughout the past year: there was this Harvard Law blog about whether Musk "dominates" his Board, analysts calling for accountability for Musk's recent statements and promises of no need for capital and cash flow positive that have been looked upon with increasing skepticism. CtW further goes on to point out many "obvious" critiques of the Board that have long since been pointed out by skeptics of the company, including the board potentially being "beholden" to CEO Musk.
“Tesla has failed to hit critical production milestones and has consequently seen its past progress toward profitability sharply reverse,” Dieter Waizenegger, CtW’s executive director, writes in a letter the firm plans to file Wednesday with the Securities and Exchange Commission. “But instead of recognizing the need for independent and effective board leadership, Tesla has re-nominated three directors who exemplify the company’s failure to evolve.”
The letter escalates long-held criticisms of a board that CtW and several investors have faulted for being beholden to Musk, Tesla’s chief executive officer. The company has burned through almost $4 billion during the past year while scaling up operations for the Model 3, intended to be its first mass-manufactured car. The sedan has missed several production targets and stoked concerns about whether the company has enough cash.
Among the critiques remains the odious Solar City acquisition - currently the subject of a lawsuit and Harvard Law Blog that both draw the same conclusion: Elon Musk may have had full control over his Board and his company when Tesla agreed to acquire Solar City.
One thing seems to be for sure. It doesn’t look as though anything that gets tucked into SEC filings is going to get through unnoticed at this point. Where formerly the only people reading the filings with fervor and scrutiny may have been shorts sellers, now CtW and other shareholders who want the Board out have motivation to do the same. The pressure continues to rise on Tesla.