A Securities and Exchange Commission settlement that requires Tesla to replace Elon Musk with a new chairman and add two independent directors doesnt go far enough to fix the companys corporate governance woes, according to a union-affiliated investor group and officials representing major pension funds in five states.
The investors—several of which have pressured Tesla in the past and achieved mixed results—play out a series of measures the board should take to boost oversight and better hold Musk accountable as chief executive officer. The billionaires run-in with the SEC over allegations of securities fraud have added urgency to changes that the investors say are long overdue.
“Shareholders need new stewards on the board,” the investors wrote in a letter Thursday to three of Teslas independent directors. The signatories are officials with California, Connecticut, Oregon, New York state and city pension funds, plus CtW Investment Group, which is affiliated with a federation of unions.
Tesla didnt have an immediate comment.
The group wrote that they help oversee about $774 billion in combined assets and say theyre substantial investors in Tesla. They call for the creation and release of a plan to refresh the board and for timelines to be set for some directors to leave.
The investors also ask that the board permanently separate the chairman and CEO positions, a step beyond the SEC settlement that prevents Musk from being able to hold both jobs for three years.
Musk, 47, put his future at Tesla in jeopardy by sending tweets in August claiming to have secured the funding and investor support to take the company private. He and the company settled fraud allegations last month by agreeing to each pay $20 million and didnt admit or deny wrongdoing.
Investors have long criticized Teslas board for several directors close personal and professional ties to Musk that date back years. In April 2017, the California State Teachers Retirement System, New York City Comptroller Scott Stringer and CtW were among those who called for the company to add new independent directors. James Rupert Murdoch and Linda Johnson Rice were appointed about three months later.
A group of Connecticut pension funds also pushed last year for Tesla to move to annual director re-elections. The measure was defeated, and board members continue to serve three-year terms.
This year, CtW waged a campaign against the re-election of three board members. Shareholders voted to keep the directors and opposed an independent chairman.
In their letter Thursday, the investors urged Teslas nominating and corporate governance committee to give firm dates for when directors Antonio Gracias and Kimbal Musk—Elons brother—will leave the board. They also called for Steve Jurvetson to be removed immediately after an almost yearlong leave of absence.
“Five of eight current non-executive directors have professional or personal ties to Mr. Musk that, in light of recent events, appear to have put at risk their ability to exercise independent judgment,” the investors wrote. “As the SEC has recognised, Teslas board needs directors who go beyond the technical definition of independence, and fulfill the spirit of the term.”
The investors called for the board to adopt proxy-access rights that would give long-term shareholders the ability to nominate their own slate of directors.
They also asked for Tesla to improve the diversity of the board and find directors who have experience that “specifically match the companys strategy and current skill sets.” Robyn Denholm is the only director who has experience working for a major automaker. She was a finance manager at Toyota Motor Corp.s Australia unit early in her career.
The investors sent the letter to Denholm, Murdoch and Johnson Rice—the three board members whom investors and proxy firms consider to be the most independent from Musk.