Analyzing The Tesla Shareholder Proposals That Failed

Did you attend Tesla’s 2022 shareholder meeting this week? I did that from a distance. Frankly, I have never before accepted my responsibility as a shareholder in any company in which I have invested to attend a shareholder meeting like this. I found it very strange, very disturbing and an example of the power of big business to influence audiences.

Like many small investors, I have experienced joy when Tesla stock rises and anxiety when it plummets. Its January 3 high of $1199 made me feel smart and insightful about clean energy trends. Its May 24 low of $628 was downright depressing. My interest in Tesla made me want to attend the annual meeting of shareholders this year and vote in advance on the 5 board proposals (1-5) and 8 shareholder proposals (6-13) listed in layman’s language below. Tesla management opposed all 8 shareholder resolutions.

  1. Elect two Class III directors to serve for a term of three years. Board of Directors: FOR
  2. Reduce the director term to two years. Board of Directors: FOR
  3. Remove existing requirements for majority voting. Board of Directors: FOR
  4. Increase the number of authorized shares of common stock by 4,000,000,000 shares (three-for-one stock split). Board of Directors: FOR
  5. Appoint Pricewaterhouse Coopers LLP as Tesla’s independent registered public accounting firm. Board of Directors: FOR
  6. Proxy access. Board of Directors: MOD
  7. Annual reporting on efforts against harassment and discrimination. Board of Directors: MOD
  8. Annual reporting on board diversity. Board of Directors: MOD
  9. Employee Arbitration Reporting. Board of Directors: MOD
  10. Reporting on lobbying. Board of Directors: MOD
  11. Adoption of freedom of association and collective agreement policy. Board of Directors: MOD
  12. Additional reporting on child labour. Board of Directors: MOD
  13. Additional water risk reporting. Board of Directors: MOD

Corporations routinely resist shareholder proposals, believing that their insider knowledge prevails when making decisions about the overall health of operations. Votes on 3 of the 13 proposals at Tesla’s 2022 shareholder meeting did not follow the board’s recommendations, according to preliminary estimates.

Over board opposition, shareholders passed an advisory proposal that would increase investors’ ability to nominate directors.

Two board proposals – reducing the directors’ term of office to 2 years and removing the requirement for a supermajority – did not receive a supermajority (ironic) necessary to pass.

Investors approved the three-for-one stock split of Proposition 4. While the split doesn’t change the way Tesla does business, the idea behind the split is that the publicly traded company could appeal to more small investors if the price per share is lower.

A proposal asking directors to allow large and long-term shareholders or groups with at least 3% of the shares to nominate directors cleared objections from the board. The board had previously said that a proposal like this could create opportunities for special interests to distort Tesla’s plans.

The company did not announce voting figures Thursday at the company’s plant in Austin, Texas. Those numbers came in an SEC filing Friday.

A Deeper Dive into the Tesla Activist Shareholder Proposal That Failed

“Without you, we wouldn’t be where we are today,” Robyn Denholm began. Denholm is a venture capitalist and has served as a Tesla director since August 2014 and as chairman since November 2018. She offered a wide range of Tesla achievements and was proud of her 8th year as a board member. “Good governance,” she noted, “is a hallmark of stability.” Assuring the audience that the board respects its shareholders, she announced the creation of a soon-to-be-released shareholder portal for company information and updates.

Shareholder proposals took center stage after Denholm’s remarks, where appointed shareholder representatives were given 3 minutes each to speak in favor of a proposal.

Shareholder proposals that failed included:

  • Requests the company to report its efforts to prevent racial discrimination and sexual harassment annually (7): The shareholder representative spoke about the hundreds of Tesla employees of color in California who have experienced racial slurs, disparate treatment and disinterest from the Human Resources Department. Hidden arbitration, the speaker said, can create legal and financial risks in human capital. “Racism has no business” at Tesla, the speaker concluded.
  • Instilling better-aligned gender diversity on the Tesla board (8): The shareholder activist noted that research says more gender diversity leads to better shareholder value and reminded everyone that Tesla’s board is disproportionately male.
  • Evaluating and reporting on its direct lobbying and influence activities (10): The company scores 0/70 on openness about transparency, the representative revealed. Although Tesla counters that the information is readily available online through an internet search. “Tesla’s message seems to be ‘trust us,'” while other car companies have greater lobbying, the speaker said.
  • Accepts the right of employees to form a union (11): The sixth speaker spoke on human rights and due diligence on labor rights. The board’s indifferent response to workers’ rights is causing concern among shareholders, the speaker claimed. Tesla’s peers “explicitly refer” to the right to freedom of association with respect to operations, yet Tesla creates “workforce uncertainty” by failing to allow freedom of association.
  • More reporting on children’s human rights: The shareholder activist requested a public report by 2025, explaining that cobalt mining in the Democratic Republic of Congo involves the exploitation of child labor with children “often lured to work for a few coins.” The result is that “poverty, injury and even death are a daily reality.” The speaker stated that Tesla is complicit in “aiding and abetting” the risks of children within its supply chain.
  • Water risk reporting (13): A representative from As You Sow asked for more board attention to drinking water and agriculture, as Tesla uses significant amounts of water in its manufacturing, including in areas exposed to water risk. Shareholders need a tool to put Tesla’s water-based use and risk into perspective, the speaker said.

Tesla has a total of 1.04 billion shares outstanding, according to data from Nasdaq.

Tesla CEO Elon Musk often speaks about the social need to promote free speech and robust debate on key issues. Elon Musk is Tesla’s largest individual shareholder and owns 163.58 million shares, equivalent to 15.79% of the stock. Musk can have a big influence on the course’s direction, as evidenced by his celebrity-like reception at the shareholder meeting after the vote on the proposals was completed.

The institutional investors who own the largest shares of Tesla include investment advisers and managers, banks, financial services companies and asset management companies. As a group, they account for the largest part of Tesla’s shares and have a real influence on the share price. Institutional investors accounted for the largest block of shares with about 431 million or 42% in July.

Retail investors accounted for 39.8% of the stock’s ownership, totaling 411 million shares, and corporate executives held 18.68% of the stock, or 193.5 million shares. Large investors can have a significant impact on a company’s stock’s future performance, which in turn can influence the reception of social justice proposals like those presented at the 2022 Tesla meeting.

The company believes that the sooner the world stops relying on fossil fuels and moves towards a zero-emission future, the better. Yet in May, Standard & Poor’s removed Tesla from the S&P 500 ESG index, a list of companies that meet certain environmental, social and governance standards. Tesla’s mission is to accelerate the world’s transition to sustainable energy.

A small Tesla shareholder like me has little influence on the decision-making of a larger company like Tesla. But as activist investors, we can continue to encourage the company to rise to the better angels of their nature, to quote Abraham Lincoln.

When audiences crack up and giggle at activist shareholder appeals, we can respond with indignity.

When Tesla looks the other way on child labor for cobalt, we can make the actions involved in the supply chains transparent.

When labor is reduced to profit over people’s rights, we can speak out and remind other shareholders that modes of production can seek profit while infusing justice, dignity and respect for people.

We can support Tesla in seeking profit while reducing inequality and improving the quality of the social environment, which is the hallmark of a true disruptive force for the benefit of society.

Tesla shareholder

Photo by Carolyn Fortuna, CleanTechnica


 

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