Tesla is trying like mad to convince investors the diversity of its board of directors would be helped by a merger with solar company SolarCity, but investors appear unconvinced.
Tech-entrepreneur Elon Musk, who chairs both companies, continues to try his level best to convince Tesla investors the merger will result in the electric vehicle maker’s board becoming less echo-chamber-like and more diversified.
Investors are holding out hope the merger will make SolarCity less reliant on a good-ole-boy’s network but are also skeptical. Six out of seven board members with SolarCity have direct connections with Musk.
“The upcoming merger is an opportunity to rethink the board’s structure,” said Dieter Waizenegger, executive director of CtW Investment Group, whose group holds more than 200,000 shares of Tesla stock.
Waizenegger added a caveat to his optimistic point.
“A bigger board is not necessarily a better board,” he told reporters, “if it is stacked with family and friends.”
CtW claimed in July that the market’s “hostile reaction” to the SolarCity deal was induced, in part, by the group’s recognition that Donald Kendall, chief executive of investment management firm Kenmont, is the only person on the SolarCity board without deep-rooted ties to Musk.
Technology analysts have noted similar criticisms.
“You can’t have a board that is just an echo chamber,” said Vivek Wadhwa, a professor at Carnegie Mellon University and tech-entrepreneur. He is also a long time critic of crafting boards too heavily stacked with friends and family.
The tech-entrepreneur insisted his critics are completely off the mark — “The conflicts of interest are if we don’t merge,” Musk told reporters in August while walking through of Tesla’s Nevada-based Gigafactory.
The board does look like a family affair from an outsider’s perspective.
SolarCity’s chief executive officer, for instance, is Lyndon Rive, Musk’s cousin. And even though he assured reporters he would recuse himself from the “decision-making process,” the criticisms continued.
And JB Straubel, Tesla’s co-founder and current SolarCity Board of Director, played a big part in designing Tesla’s electric vehicles, focusing on their batteries, motor, power electronics, as well as their software systems. Unlike Rive and Musk, Straubel has not announced a decision to recuse himself from the voting process.
They’re not the only members with deep ties to Musk.
Tesla’s other members are Antonio Gracias, the founder of a private-equity firm and a director at SolarCity; Ira Ehrenpreis, a venture capitalist and investor of Musk’s SpaceX; Brad Buss, a former SolarCity chief financial officer; Steve Jurvetson, a SpaceX director.
The board of directors’ echo chamber has prompted lawsuits as well.
The four lawsuits allege that insiders with the electric vehicle maker would be unjustly enriched by the companies’ combination, according to a regulatory filing on Monday. Two individual shareholders and two public pensions filed the lawsuits earlier this month.
The Arkansas Teacher Retirement System, as well as investors Ellen Prasinos and P. Evan Stephens, joined the Riviera Beach Police Pension Fund in Florida in its lawsuit.
Merging with SolarCity amounts to Tesla “bailing out their own investments,” said Seth Ottensoser, an attorney for the Riviera Beach Police Pension Fund in Florida, one of the groups suing Tesla.
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