CtW Concerned About Tesla’s (TSLA) Corporate Governance

CtW Investment, a group which works with union-based pension funds and holds 200,000 shares of Tesla Motors (TSLA), has called on the automaker to form a special committee to review its $2.8 billion SolarCity (SCTY) proposed acquisition.

In a letter sent to Tesla’s lead independent director, CtW Executive Director Dieter Waizenegger demanded governance reforms by implementation of several steps he said would remedy Tesla’s “underlying governance deficiencies.” Waizenegger also asked for the addition of two independent directors to Tesla’s boards, and the separation of the roles of chairman and chief executive. Tesla CEO Elon Musk is also the chairman and largest shareholder of SolarCity Corp.

“The market’s hostile reaction to the deal demonstrates Tesla’s failure to establish a corporate governance structure that inspires confidence that the terms are being negotiated in the best interest of Tesla investors”, Waizenegger wrote in the letter, noting that “[t]is is particularly questionable when six out of our seven board members have ties to SolarCity. It is therefore critical that the Tesla board, before finalizing the deal, move immediately to remedy its underlying governance deficiencies…If followed, we believe this approach can improve the chances that Tesla will enhance stockholder value in its relationship with SolarCity rather than put it at risk. This single transaction, however, is only the most visible challenge now facing Tesla. To best manage future challenges we believe, as we suggested to Tesla in 2014, that the board should be permanently expanded, that the positions of Chairman and CEO be separated, that the board be declassified and that family members of Mr. Musk not serve on the board. We believe these are the minimal steps required to ensure that risk to shareholder value is minimized in the future.” Full Letter

Shares of Tesla plunged as much as 10% the day after Musk announced the SolarCity proposal on June 21. TSLA is up more than one point to $202.90 in Wednesday’s pre-market trading.