Tesla 2020 Shareholder-Meeting

Tesla 2020 Simple Majority Vote

Tesla 2020 annual meeting is 9/22/2020 at 1:30PM Pacific in Mountain View. It will be a hybrid meeting. To enhance long-term value: Vote AGAINST Denholm, Pay, Auditor, Paid Ads. Vote FOR Simple Majority Vote, and reports on Arbitration, and Human Rights.  See list of all virtual-only meetings maintained by ISS. Register for the free Tesla Investor Briefing to be held Friday, September 18, 2020 at 12 EST/9am PST

Tesla Investor Briefing 2020 AGMTesla designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, Netherlands, Norway, and internationally. The company operates in two segments, Automotive; and Energy Generation and Storage. Reading through the proxy takes too much time for most. Your vote could be crucial. Below, how I voted and why. Again, I also urge you to Register for Tesla Investor Briefing.

If you have read these posts related to my portfolio and proxy proposals for the last 24 years and trust my judgment, skip the 9 minute read. See how I voted in my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 33% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). 

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

Tesla 2020: ISS Ratings

From the Yahoo Finance profile: Tesla, Inc.’s ISS Governance QualityScore as of June 12, 2020, is 9. The pillar scores are Audit: 10; Board: 5; Shareholder Rights: 6; Compensation: 10. Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to audits, shareholder rights, and compensation, but also the board.

Tesla 2020 Proxy Voting Guide: Board Proposals

1. Tesla 2020 DirectorsEgan-Jones

Egan-Jones Proxy Services recommends Withhold for Robyn M. Denholm because she is on the Compensation Committee, which agreed to pay that is not well aligned with shareholder interests.

Vote: Withhold for Robyn M. Denholm

2. Executive Compensation

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Tesla 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CFO Zachary Kirkhorn at $21.2M. I’m using Yahoo! Finance to determine market cap ($390B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Tesla is a large-cap company.

According to MyLogIQ, the median CEO compensation at large-cap corporations was $12.2M in 2019. Kirkhorn’s was substantially above that and Elon Musk’s was $2.3B in 2018. Tesla shares did outperform during the last one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 0.41:1 because after getting up to $2.3B in 2018 he did not get much in 2019.

Egan-Jones Proxy Services writes:

We believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote AGAINST this Proposal.

Given the recommendation of Egan-Jones and my general concerns about inequality, I voted AGAINST. Yes, Elon Musk may be a genius. I love my Tesla Model S. Still, I don’t want to live in a winner take all world. I want a democracy, not an oligarchy. The top 1% already owned 40% of all corporate equities before COVID-19. Inequality is strongly correlated with political polarization and crime. Affluent American’s have a stranglehold on public opinion, legislation, and regulations.

Vote: AGAINST

3. Ratification of Independent Auditor

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. PricewaterhouseCoopers, LLP has served more than seven years. No other issues appear significant.

Vote: AGAINST

Tesla 2020 Shareholder Proposals

4. Paid Advertising

This proposal submitted by James Danforth asks Tesla to spend at least $50/car produced to advertise its products/services in order to increase brand and product awareness. However, the proponent presents no evidence that Tesla has insufficient visibility with prospective customers or that paid advertising would have favorable results for the Company or its stockholders.

Egan-Jones: We believe, that the adoption of this proposal is not critical to the Company’s long-term success and the enhancement of shareholder value. As such, in accordance with Egan-Jones Proxy Guidelines, we recommend a vote AGAINST this Proposal.

Vote: AGAINST

5. Simple Majority Vote Standard

This proposal from me (James McRitchie) asks for a majority voting standard for all applicable proposals, or a simple majority in compliance with applicable laws. I first introduced a proposal on this subject at the 2014 Tesla meeting. Shareholders are willing to pay more for companies with a simple majority standard. Reducing such entrenchment devices is associated with higher returns. Corporations should not be democratic-free zones run by small unaccountable oligarchs.  

The Board’s opposition statement argues they tried to adopt a majority vote standard last year but shareholders rejected it. However, 99.6% of shares voted FOR, while only 0.4% voted against. The problem was that a little more than 35% of shares went unvoted. Since only 65% of shares were voted, we did not achieve the 66.67% necessary to overturn the current bylaw.

It appears the proposal failed primarily for three reasons.

  1. The Board put forward less than robust arguments in favor of the proposal.
  2. They added confusion by also including a proposal to reclassify the Board not into a single class, which is the norm at large companies, but into two classes elected in alternating years.
  3. The Board failed to make a substantial effort to solicit votes in favor. If this proposal gets a majority vote, we hope the Board will not repeat the same tactical “mistakes” at the next meeting. 

Consider this proposal in the context of other poor corporate governance provisions at Tesla. 

  • Shareholders can only remove directors for “cause,” which basically means criminal activity.
  • Classified board, only allows shareholders to hold individual directors accountable every 3 years. 
  • Shareholders cannot call special meetings or act by written consent. 

Egan-Jones recommendation: Contrary to supermajority voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome.  After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal. 

Vote: FOR

6. Report on Employee Arbitration

This proposal from Nia Impact Capital requests a report on the impact of the use of mandatory arbitration on Tesla’s employees and workplace culture. The report should evaluate the impact of Tesla’s current use of arbitration on the prevalence of harassment and discrimination in its workplace and on employees’ ability to seek redress.

Egan-Jones: We believe that the approval of this proposal would result in the Company incurring unnecessary costs and expenses by duplicating efforts that are already underway and providing additional reports with information that is already available to shareholders. After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote AGAINST this Proposal.

Tesla argues that arbitration does not limit remedies and that ‘Tesla, its employees, and its stockholders would be better served by continuing to execute on tangible workplace goals and our mission, rather than wasting time on such a report. Since there does appear to be some dispute as to the seriousness of problems at Tesla, it seems to me that a report is warranted and is unlikely to cost much in proportion to the potential benefit. Nia Impact Capital’s arguments are evidence-based. Tesla’s appear to be based on mere assertions. 

Vote: FOR

7. Report on Human Rights

The proposal by the Sisters of the Good Shepherd New York Province, an affiliate of Investor Advocates for Social Justice (IASJ),  asks Tesla to prepare a report on the company’s processes for embedding respect for human rights within operations and through business relationships. They argue existing disclosures fail to provide evidence of effective human rights due diligence. The requested report would describe (1) board oversight of human rights and (2) human rights due diligence processes, including systems for providing a meaningful remedy when adverse human rights impacts occur. 

Tesla counters that it is confident its publicly available policies and periodically updated disclosures already provide robust and transparent information. Therefore, additional reporting would be duplicative and unwarranted. See IASJ’s more convincing exempt solicitation

Egan-Jones: We believe that the adoption of a more comprehensive human rights policy, coupled with implementation, enforcement, independent monitoring, and transparent, comprehensive reporting will assure shareholders of the Company’s global leadership. After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal.

I don’t want my car to be built, in part, by child/forced labor or in unsafe working conditions. Tesla can respect human rights and still build the best cars available. I recently learned that a very small inheritance of mine can probably be traced to a ship captain who profited from the slave trade. I can’t go back hundreds of years to change his behavior, but I sure can vote to ensure my investments are more humane. Join me.

Vote: FOR

Tesla 2020 CorpGov Recommendations

Proxy Insight had not reported any votes when I last checked but may have by now. 

Looking up a few funds announcing votes in advance, CBIS voted the same as CorpGov below. Calvert voted the same, except voted for Auditor.

CorpGov Votes

  1. Directors: AGAINST Robyn M. Denholm
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Paid Advertising: AGAINST
  5. Simple Majority Vote Standard: FOR
  6. Report on Employee Arbitration: FOR
  7. Report on Human Rights: FOR

Tesla 2020: Mark Your Calendar

Stockholders may present proper proposals for inclusion in Tesla’s proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing in a timely manner to:

Tesla, Inc.
3500 Deer Creek Road
Palo Alto, California 94304
Attention: Legal Department

with a copy sent by e-mail to shareholdermail@tesla.com.

Any correspondence that is not addressed precisely in accordance with the foregoing, including any correspondence directed to a specific individual, may not be received timely or at all, and we strongly recommend that you also send such correspondence by e-mail and verify that you receive a confirmation of receipt from Tesla.

In order to be included in the proxy statement for the 2021 annual meeting of stockholders, stockholder proposals must be received in accordance with the above instructions no later than the 120th day preceding the one-year anniversary of the date on which this proxy statement is released to the Company’s stockholders, or January 28, 2021, and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Warnings

Be sure to vote for each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above the median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” chosen by aspiration. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.

   

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