Tesla’s annual meeting on June 11 showed Jonathan Swift’s 18th Century England had nothing on the American corporate governance community in terms of absurdist views. Shareholder proposals included PETA’s demand for vegan steering wheels (no word on whether a gluten-free variety will be available) and a stockholder with only 12 shares advocated the formation of a policy committee that monitors “human rights, environment, domestic governmental regulations, foreign affairs and international relations affecting the Company’s business.”
In a more enlightened age, the shareholder, Jing Zhao, would be dismissed as a crank. In an “economy of fame,” as we have today, Bloomberg’s Tesla maven, Dana Hull, jumps on the opportunity to get Tesla CEO Elon Musk in a headline and the story gets full front page coverage.
“I’m sometimes a little optimistic about timeframes,” he said. “It’s time you knew.”
To be sure, a meaningful debate took place at the meeting, as well. Shareholder proposals on director tenures and shareholder majorities failed and for a good reason. Ever since Berle and Means disclosed the ‘agency’ problem in their landmark book, The Modern Corporation, shareholders have struggled to find a way for people with no skin in the game, which is how they thought of the modern CEO, to run a business that represents the shareholder’s interest. Corporate governance types like proxy advisor Glass Lewis have taken this to Lilliputian levels by trying to restrain every aspect of a CEO’s vision and influence, and without regard to the type of CEO required to run a company like Tesla. Fortunately, shareholders are savvier than the guardians at Glass Lewis, and they voted, “In Musk We Trust.”
The company and its iconic CEO are not without problems, and these were addressed at the meeting, as well. Tesla’s stock is at a two year low, and the company has experienced one of the worst quarterly losses in its history. There is scrutiny over autopilot driver assistance and questions about battery safety, according to The Verge. But these are road bumps as every inventor from Nikola Tesla on could confirm, innovation is consistent with risk-taking, and no amount of regulation or monitoring eliminates it.
In corporate governance terms, Musk had a tough 2018. He went from pot smoking to errant tweeting, which led to the SEC’s demanding he relinquish the chairmanship and pay a $20 million fine. That is why the timing of Tesla’s shareholder proposals was meant to erode his already weakened authority: shorter director terms and simple majorities (vs. supermajorities) to pass corporate actions. Both measures failed to get sufficient votes. The tension over Musk’s 20% ownership is a red herring. His shares are as worthy as any others, but Glass Lewis wants to level the playing field because that is the fashion today in boardroom oversight. How else can we get vegan steering wheels, after all?
The meeting was a newsmaker on several fronts. It laid to rest any doubts about Tesla’s active demand profile going into 2019. Musk maintains the real problem he is dealing with is affordability. He said in January, “people don’t have the money to buy the car.” Tesla also began shipping Model 3s to China this year, which should stimulate colossal demand.
Tesla acquired Maxwell Technologies, a battery tech company. Musk calls it a ‘strategic acquisition” at the annual meeting. Maxwell holds patents on some “very important technologies” that Musk thinks will enhance Tesla’s ability to build up Lithium-ion battery cell production. Musk commented that battery production is the company’s biggest hurdle.
Musk is also planning a Tesla pick up truck, which he describes as a cross between “cyberpunk and like it’s come from a sci-fi movie.” The rollout should be sometime this summer at a price of under $50,000. “Even in something as mundane as a pickup truck, Musk’s vision is infectious: “We’re trying to create something new, and it’s not just basically a copy of the form factor of everything else,” he said. “But you still want it to be great. It’s very hard. This is a very hard thing.”
Musk is going from data mining to real mining, as the company is examining options in acquiring mines that would help battery production. In addition to vertical integration, Musk is also going horizontal. He is thinking about an insurance company based on Tesla’s infinitely better information about its drivers (and car safety features).
“There’s a lot of complexity in parking lots.”
The company is going to launch a new feature called “Advanced Summon” in which drivers use an app to bring the car from a parking spot to the store entrance. The feature must navigate around parking, errant drivers, and shopping carts. Musk says, “We’re making steady improvements to it. It’s close to being amazing. It’s not quite there, but it’s close,” he said. “There’s a lot of complexity in parking lots.”
Musk addressed the big question about his tendency to occasionally to shout out too much. So with some caution, this year’s meeting, Musk confessed, “I’m sometimes a little optimistic about timeframes,” he said. “It’s time you knew.”
Musk battles journalists who bite at rumors circulated by short sellers and labor union activists. When questioned about why the Tesla story is not getting told, and responded, “it’s very distressing, it makes me sad. I’m not sure what to do about it.” He admitted the company provides rebuttals to negative stories, but they get buried. “It’s the craziest disinformation campaign I’ve ever seen,” Musk said. When he asked why he didn’t combat the stories through advertising (Tesla does none), he offered, there’s “just too much trickery in advertising.”
Musk has spent his career tossing over the flotsam and jetsam that gets in the way of running a world-changing global company. His ability to focus on the main objective is beyond the power of most of us, and indeed, most journalists and corporate governance types to fathom. As I followed Musk as CEO of his first startup, Zip2.com, people may think I have a particular window into his formidable ability to deal with enormous challenges. The reality is that Musk is a visionary who designs strategies on the fly because what he is building is more like a space launch into the unknown than a trek that clings close to the earth. His shareholders not only seem grateful but confident.