6/13/24 – Issue 8.71 – Your weekly news on all things board. 

Tesla’s board of directors has been steadfast in its support for Elon Musk's pay package, despite widespread criticism from investors and proxy advisors. Today, the company's shareholders will have their say, casting ballots on the CEO's historic compensation plan. The accounting treatment for the package of stock options, restricted stock units, and other performance-based incentives is also under scrutiny, and some claim that the board is on shaky ground in this area as well. The outcome of today's vote will be closely watched by boards and investors alike, as the result could set a tone at many levels when it comes to governance, independence, and stakeholder primacy. 

In other news: Boards hold steady in the face of “anti-woke” shareholders, gender diversity momentum stalls, institutions are demanding more from board matrices, and some very thoughtful ideas for boards as they take on mastering CEO succession, governing in turbulent times, and walking the talk when it comes to purpose. Happy reading! 

Note: Directors Domain will take a brief hiatus next week for the Juneteenth holiday. We’ll be back with riveting board news June 27.  

In the Spotlight

The Vote on Elon Musk’s $46 Billion Pay Package Is Coming Down to the Wire

Musk himself has joined meetings with key Tesla investors to get out the vote

“The vote on Elon Musk’s $46 billion Tesla pay package this week is so far too close to call, with the automaker and billionaire racing to drum up support in recent days. Tesla shareholders are expected to finish voting Thursday on a 2018 pay package that was set to award Musk stock options worth billions of dollars after he led Tesla to significant growth in the last five years. Votes have been trickling in for weeks but it isn’t yet clear if shareholders will sign off on the package ….The chief executive has joined recent meetings with proxy adviser Glass Lewis, and investors including Vanguard, State Street and BlackRock, alongside Tesla Chair Robyn Denholm and others, the people said. Musk was supposed to talk about the future of Tesla, not lobby for his compensation in those meetings.” THE WALL STREET JOURNAL

Tesla Directors Make Accounting Assumptions…Will They Hold Up?

Is a “controlled mindset” leading to the Tesla board’s 2024 support for this week’s vote

“This week, Tesla’s stockholders will vote on a board proposal to restore Elon Musk’s 2018 massive options grant that a Delaware court invalidated in January. A key reason the board cited for preferring to restore Musk’s 2018 pay package rather than negotiate a new one is that the former would not involve any new accounting charge. However, the prediction that restoration would require no accounting charge is contestable, and it seems that the board’s claim that no new charge would be required is not based on any independent accounting advice. Therefore, stockholders voting this week should take into account that restoration of the old grant may well result in a massive account charge that could equal or exceed $25 billion ….Accounting is a specialized profession, and determination of accounting consequences requires substantial accounting expertise that the sole member of the Board’s special committee that decided to recommend restoration of the old award did not seem to have.” PRO MARKET

Harvard Law Prof Accuses Tesla Board of Defiance

Whereas the court decision did not overrule a meaningful expression of the stockholder will, it did invalidate the Board’s decision

“At the end of a long trial, a massive option grant that Tesla awarded in 2018 to its CEO Elon Musk was invalidated by a Delaware court, which (as the New York Times described) cast “a harsh light on the behavior of … Tesla’s board of directors.” Tesla’s Board, however, did not react to the decision with contrition and an attempt to improve its governance. Instead, the Board seems to be following an approach of dismissal and defiance. To begin, a well-governed board should take a highly critical court decision with the seriousness that it deserves, according to a high priority to addressing the problems identified by the decision. But the Tesla Board chose not to do so.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

From Boardspan this Week:

The Governance Curve™

Drawing on Boardspan’s governance expertise and our deep knowledge of
how boards collaborate among themselves, we developed The Governance Curve
as a roadmap for board success. At its core, The Governance Curve considers the complexity of the challenges that a board faces relative to the value or contribution that stakeholders receive. Understanding this relationship will help boards align, prioritize, and
maximize their contributions. 

Across the Board

Politics Seep into the Boardroom and Directors Resist

Opinions from all sides appear more often although proposals fail to gain much traction

“A new kind of shareholder activism is rattling companies: ‘anti-woke’ agitators. Shareholders at dozens of big companies, from GE Aerospace to UPS, are voting on proposals opposing environmental and social initiatives this year. Investors backed by conservative groups are suing Target and other companies for their progressive stances. And companies are muting their focus on diversity, equity and inclusion initiatives as DEI programs come under legal and political threat. The activists frame the push as getting politics out of business—and suggest getting used to it ….Advocates for more progressive environmental, social and corporate-governance shareholder proposals call the newcomers politically motivated and cite research suggesting more established ESG measures improve long-term financial outcomes at companies.” THE WALL STREET JOURNAL

Six Early Takeaways from the 2024 Proxy Season
Company leadership and major investors resist abandoning ESG programs 

“With November’s election on the horizon, the politicization of ESG topics remains a key concern for both investors and corporations. Over three quarters of North American CEO respondents to Teneo’s CEO and Investor Survey have stated that it has impacted the way their business operates. Nevertheless, an overwhelming 92% of CEOs stand behind their companies’ ESG-related programs, per the same survey. Similarly, large institutional investors have underscored their focus on material ESG issues in their 2024 stewardship reports ….To help companies and other interested parties unpack how this backdrop impacted 2024 proxy season,  we analyzed the vote results of S&P 500 companies and summarized our key takeaways below.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Gender Diversity Momentum on U.S. Corporate Boards Stalls
Companies with less diverse boards exhibit a higher likelihood of exiting the Russell 3000 

“Analysis of the Russell 3000 shows women hold only 29.7% of board seats, with a minimal 0.3% increase from the previous quarter and 0.8% from the previous year. Only 30.7% of the 587 new board positions are filled by women, the lowest percentage since 2017. Despite some sector and regional improvements, 41% of companies still have boards with two or fewer women. Women of color hold nearly 8% of board seats, a slight increase. At this rate, achieving gender parity on boards and 20% women of color representation will not happen until 2045.” 5050 WOMEN ON BOARDS

Board Matrix Proposal Attracts Support Among NextEra Energy Shareholders
A diverse board – in terms of relevant skills, attributes and demographics – is best positioned for future challenges

“Four in 10 votes cast at NextEra Energy’s AGM backed a resolution calling for the company to release a board matrix, an increasingly common feature of companies’ proxy statements. The proposal, filed by the New York City Employees’ Retirement System (NYCERS), requested that NextEra’s board disclose in the company’s proxy statement ‘each director/nominee’s self-identified gender and race/ethnicity, as well as the defined skills and attributes that are most relevant considering the company’s overall business, long-term strategy and risks, particularly with respect to climate change ….Many companies have in recent years begun offering greater information about their board in the company’s proxy statement, including presenting that information in a matrix.” GOVERNANCE INTELLIGENCE

Power, Influence, and CEO Succession
How the board, the incumbent, and the new leader can ensure a successful transfer of authority

“Of all the decisions that a company’s board of directors makes, choosing the next CEO is arguably the most crucial. A failed CEO succession can disrupt employees’ work, cause senior talent to jump ship, damage the company’s reputation, erase enormous value, and ruin the careers and legacies of the outgoing CEO, the board, and the designated successor. According to research by Claudio Fernández-Aráoz and colleagues, the cost of failed CEO and C-suite successions is close to a trillion dollars annually among the S&P 1500 alone....In theory the key parties in the process would be fully aligned on getting a succession right. In reality there are multiple agendas at play..." HARVARD BUSINESS REVIEW

Your Board is Your Best Insurance Against Business Turbulence

Mobilizing the collective intelligence of the board may be the best bet to weather any storm

“Under stress, good people can make bad decisions. Even CEOs, who are often exposed to contradictory demands, are not immune. Bad decisions can range from ill-advised stock buybacks to poorly devised cost-cutting measures to extremes like imaginative accounting or illegal practices. We’ve seen how Nokia, General Electric, IBM and many others have stumbled in the face of such existential crises. During turbulent times, many CEOs may be tempted to weather the storm alone, but this is seldom a winning approach. Some may even deny or seek to hide the difficulties and shore up short-term results to the detriment of the long-term sustainability of their company.” INSEAD

The Purpose of Governance: What We Say vs. What We Do
Boards are upending the old governance order, challenging governance as usual

“Corporate governance standards and expectations continue to evolve in response to rising demands from investors, regulators and stakeholders — and in response to continuous improvement on the part of high-performing Boards. In recent years, with more companies clarifying their purpose as their meaningful reason to exist, their Boards are beginning to broaden their oversight role to include purpose ….The purpose governance trend is a welcome one, as Boards that fail to oversee their company’s purpose face a governance gap. They put their companies at risk of inauthentic purpose or ‘purpose washing;’ and worse, fail to realize the commercial and social impact of their purpose.” SUSTAINABLE BRANDS

Boeing’s Board and The 737 MAX
Why did the board not recognize these failures?

“....The Boeing board of directors, too, lacked basic mechanisms to oversee aircraft safety. Boeing’s board did not have a standing committee responsible for safety, and safety was not a regular discussion item on the agenda. The board committee most closely responsible for safety was the audit committee. Furthermore, the board did not have mechanisms to receive internal complaints about safety, nor did it require management to review employee communication on internal message boards to identify concerns about quality. Any internal complaints were instead directed to Boeing’s Safety Review Board, which consisted of chief engineers, but this board did not have direct reporting channels to the board. According to one board member, ‘Safety was just a given.’” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Seat at the Table

• Tyson Foods welcomes to its board Maria Martinez, former EVP and Chief Operating Officer at Cisco Systems

• Noodles & Co. elects to its board Britain Peakes, Principal Investor at portfolio manager Hoak & Co.

• Academy Sports + Outdoors appoints to its board Scott Boatwright, Chief Operating Officer at Chipotle Mexican Grill

• Bloom Energy adds to its board Gary Pinkus, Chairman of North America for McKinsey & Company
• Construction firm Granite welcomes to its board Carlos Hernandez, former CEO of engineering firm Fluor Corporation
• The Bancorp elects to its board Mark Tryniski, former President and CEO of Community Bank System

• Cabinet manufacturer MasterBrand adds to its board Catherine Courage, VP at Google

• Vera Therapeutics appoints to its board Christy Oliger, former SVP of the Oncology Business Unit at Genentech

• Dermatology firm Cutera adds to its board Jeryl Hilleman, former CFO of pharmaceutical firm Intersect ENT

• Hilton Grand Vacations announces to its board Gail Mandel, former CEO of Wyndham Destination Network

• Pyxis Oncology welcomes to its board Michael Metzger, CEO of Syndax Pharmaceuticals 

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.