Four directors to leave, including longtime members, reducing board to seven from 11 following SEC-mandated changes
As Tesla Inc. discusses potential ramifications for Chief Executive Elon Musk’s actions with the Securities and Exchange Commission, it disclosed a dramatic change to its board of directors late on Good Friday.
In a proxy filing with the SEC, Tesla TSLA, +0.75% said that four independent directors will step down. Brad Buss and Linda Johnson Rice will not stand for re-election at the annual shareholders meeting, scheduled for June 11, while Stephen Jurvetson will remain until the 2020 meeting. Antonio Gracias will also step down at the 2020 annual meeting, if Tesla shareholders approve a proposal at the annual meeting that reduces director terms to two years from three. Otherwise, he will leave in 2021.
Jurvetson has been on a leave of absence from the board since allegations of misconduct at his venture-capital firm in 2017, but the proxy confirmed that he returned to Tesla’s board this month. Buss, Gracias and Jurvetson are longtime Tesla board members and early investors. Rice, who joined Tesla’s board in 2017, is an experienced chief executive in the publishing industry who has served on the boards of several large public companies.
Tesla recently added Oracle Corp. ORCL, +0.07% founder Larry Ellison and Kathleen Wilson-Thompson, a human-resources executive with Walgreens Boots Alliance Inc. WBA, -0.92% , to its board, and replaced Musk as chairman with board member Robyn Denholm. Those moves were part of a settlement with the SEC, which had threatened to seek the removal of Musk from his chief executive role as a result of tweets that suggested a go-private deal for Tesla had confirmed funding.
The SEC has already accused Musk and Tesla of not living up to its settlement by continuing to tweet potentially misleading material information about the electric-car company, which Musk disputes. A judge told the SEC and Tesla to hammer out a resolution to that accusation, and a hearing on the matter is scheduled to happen next week after a slight delay.
Tesla does not plan to replace any of the departing board members, though it did disclaim that a board committee “will continue to frequently evaluate the optimal size of the board.” The company will have a nine-member board after Buss and Rice step down, and would fall to seven after Jurvetson and Garcia depart. Those directors would be Elon Musk; his brother, Kimbal Musk; News Corp. NWSA, -0.56% executive James Murdoch; venture investor Ira Ehrenpreis; Ellison, Denholm and Wilson-Thompson.
Stephen Diamond, associate professor at Santa Clara University School of Law, was happy that longtime board members seen as friendly to Musk will depart the board after all of the SEC trouble, describing it as the end of “Musk’s crew” on the board.
“This breaks up the fundamental problem, you weren’t helping Musk by having a board that was acting like a cheerleader and an echo chamber,” said Diamond, who previously represented the CtW Investment Group, which has sought changes to Tesla’s board.
The change in director terms is one of two Tesla proposals that would change its corporate governance. The other would get rid of a supermajority rule, which required more than two-thirds of shares vote to back certain changes to Tesla’s bylaws and rules.
Tesla’s board “determined that Tesla has established enough momentum, particularly through a very successful fiscal 2018, to set its course for the foreseeable future, establish credibility for its mission, and more effectively defend itself from opportunistic corporate raiders,” the proxy reads.
A Tesla spokesman declined to comment beyond what was stated in the proxy Friday.