A large pension fund has addressed a letter to Tesla shareholders recommending that they vote against the reelection of Kimbal Musk and James Murdoch and against Elon Musk’s massive stock package, ahead of Tesla’s shareholder meeting on June 13.

Tesla’s shareholder meeting is coming up in just a few weeks, and it’s currently doing quite a lot to convince shareholders to vote their shares on a couple of critical decisions to the company.

At issue are a number of choices, including the reelection of Tesla’s board of directors, whether or not to move the company’s incorporation to Texas instead of Delaware, and whether or not to reinstate Tesla CEO Elon Musk’s $55 billion pay package which was recently voided due to misleading statements and Elon’s close personal relationships with the Tesla Board.

That court ruling looms large over the decisions for Tesla shareholders in this vote, as most of the proposals up for a vote are related to the ruling. There’s the direct vote on reinstating Musk’s pay package, the vote to reelect the company directors whose personal relationships are intertwined with Musk and thus reduce their level of independence, and the vote to move the company’s incorporation to Texas, which was a knee-jerk reaction by Musk after the Delaware Court of Chancery voided his pay package.

Each of the proposals require a simple majority of votes to win, except the proposal to move the company’s incorporation – that requires a majority of all shares outstanding to vote in favor, which is a high bar given that turnout will not be 100%.

Many have chimed in with their opinions, including Tesla itself, which spent ad money to influence the vote, a move we haven’t really seen before. Tesla also put up a website pitching the vote, and Musk and many Tesla-related accounts have been tweeting a lot about getting people to cast their votes – both trying to increase turnout, and to get friendly voters to hopefully cast the vote in their direction.

But now we’ve heard from some of the US’ largest pension funds, those managing New York City’s pension systems, along with a number of other investment groups. In a letter, they’re suggesting that shareholders vote against the pay package and against directors Kimbal Musk (Elon Musk’s brother) and James Murdoch (son of Rupert Murdoch, one of the world’s most influential climate change deniers).

The group sent a letter, written by Brad Lander, the Comptroller of the City of New York, on behalf of several NYC city employees pension funds. NYC pension funds are some of the largest in the US. The letter was also signed onto by SOC Investment Group, Amalgamated Bank, United Church Funds, Nordea Asset Management, SHARE, UNISON, and AkademikerPension (a pension fund for Danish schools).

In it, the group argues that the pay package does not serve Tesla shareholders. It argues that the package won’t have any incentivizing effect, and that it is excessive. It also points out that the reimplementation of the package was decided on in a rushed manner by a single director, which it calls “recklessly fast,” echoing the Delaware Court’s prior decision.

It also calls Musk a “part-time CEO,” saying that the intent of the original reward was so that Musk would focus his time on Tesla for the full ten-year period of time that the reward covered. The letter says: “If this was one of the primary reasons for the 2018 pay package, then it has been an abysmal failure, as six years later Musk’s outside business commitments have only increased.”

Musk currently runs Tesla, SpaceX, The Boring Company, NeuraLink, xAI, Twitter, and the Musk Foundation. He has gained control of or founded several of these companies after the original 2018 stock reward, and observers have noted his excessive commitment to Twitter lately, after spending $44 billion to purchase it which he had to sell Tesla stock to fund.

The letter states that there have been several instances of Musk making decisions that benefitted himself, but not shareholders. This includes his split attention on his other companies, his use of Tesla employees to do work for those other companies, his poaching of engineers from Tesla to move them to his other companies. The board has not stepped in to stop any of these moves. Musk’s recent threat to stop Tesla’s development of AI/robotics if Tesla shareholders don’t give him back the shares he sold to buy Twitter came after the letter was sent.

The letter says that this shows lack of independence from Tesla’s directors, focusing primarily on Kimbal Musk, who is Elon Musk’s brother, and James Murdoch, who is a close friend of Elon, having taken several family vacations together and attending Kimbal’s wedding.

It also describes close relationships with several other board members and the exceptionally high compensation they have received, all of which threaten independence of the Tesla board. Standard corporate ethics suggest that board members should be independent to ensure effective and unbiased direction of the company. But only two board members are up for a vote at this time, and the letter asks shareholders to vote against both of them.

Beyond these arguments, the letter also states that Tesla’s performance has seen a downturn lately, and that that downturn has been related to Musk’s focus on Twitter, where he seems to be spending more time than Tesla. It notes drops in various metrics, financial and otherwise, showing disorganization and lack of leadership, and shows that these metrics have dropped particularly since Musk shifted focus to Twitter.

Many signatories of the same group sent a previous letter in April to board chair Robyn Denholm outlining these concerns and requesting a meeting, but did not receive a response.

You can read the full letter as part of an SEC filing here. The last time to vote your shares is June 12, at 11:59pm Eastern time, or at Tesla’s shareholder meeting.

Electrek’s Take

Personally, I think the letter makes good points. I think it’s quite clear that there are a lot of problems with Tesla’s corporate governance, particularly after Musk has recently fired or reassigned so many high-level executives. Currently Tesla only shows three people on its corporate governance page, one of whom was recently reassigned to China, leaving only the CFO and “part-time CEO” running the company.

This would be a problem even if the CEO was an exceptional leader who was fully focused on the job and making good decisions, but Musk increasingly seems as if he does not meet that bar.

In particular, firing the entire Supercharger team, despite it being perhaps the most successful team within Tesla and led by one of its most competent executives, Rebecca Tinucci, seems like a poor decision. And that decision seems even worse when learning that the firing wasn’t due to team performance, but due to Musk himself being mad at Tinucci’s refusal to trim her team further, firing her and her entire 500-person team as petty retaliation and causing chaos with Tesla suppliers.

But the most effective point in the letter, I think, is that this pay package doesn’t incentivize any future behavior. Those in favor of the package have stated that it should be given as a reward for meeting the goals laid out in 2018 – but it is now 2024, not 2018.

That means that we have more information than we had in 2018, and particularly recently, that information doesn’t look good. Tesla’s performance lately and in particular the performance of its CEO has ben poor and erratic, and seems increasingly so. So it seems like quite a reach to suggest that shareholders should take $55 billion out of their own pockets (via dilution) – more than its total profits for the last 4 years combined – and give it to the second-richest man in the world with no strings attached.

I say “no strings attached” because the package does not ensure or target any future performance, it merely reinstates a package that was illegally given in the first place. So it can’t help shareholders going forward, since it has no incentives going forward.

It seems like the only way this would “help” Tesla is by retaining a CEO who has become increasingly erratic, who has made threats against his own company, who has directed the spending of the company’s money to influence a vote, who has a too-close relationship with the board, and who has recently taken steps to harm tens of thousands of employees either through haphazard firings (after all, the $55 billion that Musk is asking for could pay each of the 14,000+ employees he just fired a six-figure salary for 40 whole years) or through low morale that continues to affect employees today.

And, importantly, we need a strong Tesla in order to keep the transition to EVs moving at optimal speed. Tesla is one of the few companies with the size and interest to keep pushing the transition forward, as other companies waffle on a transition that is very important for America – and the world. If Tesla’s CEO is acting erratically, that’s a problem for everyone.

So maybe if Musk doesn’t get what he wants and takes his toys and leaves as he has threatened to do, that wouldn’t be so bad for Tesla, after all.