Analyzing The Tesla Shareholder Proposals That Failed

Did you sit in on the 2022 Tesla Shareholder Meeting this week? I did, remotely. Honestly, I’ve never before accepted my responsibility as a shareholder of any company in which I invested to attend a shareholder meeting like this. I found doing so very strange, highly unsettling, and an example of the power of big business to influence audiences.

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

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

Corporations routinely oppose 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 the 2022 Tesla Meeting of Stockholders did not follow board recommendations, according to preliminary tallies.

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

Two board proposals — cutting directors’ terms to 2 years and eliminating supermajority requirements — did not receive supermajorities (ironically) necessary to pass.

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

A proposal asking directors to enable large and long-term stockholders or groups with at least 3% of the shares to nominate directors cleared objects from the board. The board had earlier said a proposal like this could create opportunities for special interests to skew Tesla plans.

The company did not announce the vote tallies Thursday at the company’s factory in Austin, Texas. Those numbers came in an SEC filing on Friday.

A Deeper Dive into Tesla Activist Stockholder Proposals that Failed

“Without you, we would not be where we are today,” Robyn Denholm began. A venture capitalist, Denholm has served as a Tesla director since August 2014 and as chair since November 2018. She offered a litany of Tesla accomplishments, taking pride in her 8th year as a board director. “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.

Stockholder proposals took center stage after Denholm’s remarks, with designated shareholder representatives given 3 minutes each to speak in favor of a proposal.

Shareholder proposals that failed included:

  • Asking the company to report its efforts in preventing discrimination and sexual harassment annually (7): The shareholder representative spoke about the hundreds of Tesla California employees of color who have experienced racists slurs, different treatment, and disinterest from the Human Resources Department. Hidden arbitration, the speaker said, can create legal and financial risks within human capital. “Racism has no business” in Tesla, the speaker concluded.
  • Infusing 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 disproportionally male.
  • Evaluating and reporting on its direct lobbying and influence activities (10): The company gets 0/70 on transparency disclosure, the representative revealed. Although, Tesla counters that the information is easily available online through an internet search. “Tesla’s message seems to be ‘trust us,'” while other auto companies have greater lobbying disclosure, the speaker said.
  • Endorsing the right of employees to form a union (11): The sixth speaker spoke about human rights and due diligence about worker rights. The board’s indifferent response to workers’ rights is cause for shareholder concern, the speaker asserted. Tesla’s peers “explicitly reference” the right of freedom of association regarding operations, yet Tesla creates “workforce uncertainty” by failing to allow freedom of association.
  • More reporting on children’s human rights: Requesting a public report by 2025, the shareholder activist explained that cobalt mining in the Democratic Republic of Congo involves exploiting child labor, with children “who are often enticed to work for a few coins.” The result is that “poverty, injury, and even death is a daily reality.” The speaker stated that Tesla is complicit in “aiding and abetting” children’s risks within its supply chain.
  • Reporting on water risk (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 that are experiencing water risk. Shareholders need a tool to put Tesla’s water-based usage 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 foreground free speech and robust debate about key issues. Elon Musk is Tesla’s largest individual shareholder, owning 163.58 million shares representing 15.79% of the stock. Musk can have a strong influence over the direction of the share price, as indicated by his celebrity-like reception at the shareholder meeting once the voting on proposals was completed.

The institutional investors that own the largest stakes in Tesla include investment advisors and managers, banks, financial services firms, and asset management companies. As a group, they account for the largest portion of Tesla’s shares and have a real impact on the share price. Institutional investors accounted for the largest block of shares, at around 431 million or 42% as of July.

Retail investors accounted for 39.8% of the ownership in the stock, totaling 411 million shares, and company executives held 18.68% of the stock, or 193.5 million shares. Large investors can have a substantial influence over the future performance of a company stock, which can, in turn, affect the reception of social justice proposals like those presented at the 2022 Tesla Meeting of Stockholders.

The company believes the faster 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, an listing 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 major corporation like Tesla. However, as activist investors, we can continue to prod the company to rise to the better angels of their nature, to quote Abraham Lincoln.

When audience members catcall and giggle over activist shareholder appeals, we can react with indignity.

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

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

We can support Tesla to seek profits while reducing inequality and improving the quality of the social environment, which is the mark of a true disrupting force for the good of society.

Photo by Carolyn Fortuna, CleanTechnica


 

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