Big Tesla investors look like firewall for Elon Musk
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[June 04, 2018]
By Ross Kerber
(Reuters) - Tesla Inc Chief Executive Elon
Musk faces votes at Tuesday's shareholder meeting that will challenge
his grip on the electric carmaker, but he may be able to count on some
powerful friends: big fund managers likely to be fans.
These stockpickers would have weighed Musk's forceful public persona in
their decisions to buy and hold Tesla shares in the first place, and
likely are ready to back him at the meeting to be held in Mountain View,
California, said analysts, corporate governance experts and investors.
They expect shareholders to elect three Tesla directors and vote to let
Musk keep his chairman's title despite investor challenges and broader
concerns with Tesla's production.
"We're making a bet on Elon Musk," said one top-20 Tesla investor who
plans to back the directors and vote to keep Musk's roles intact. The
investor compared Musk to Apple Inc <AAPL.O> founder Steve Jobs, saying,
"These people are geniuses. You either believe in him or you don't."
Said Morningstar analyst David Whiston, referring to big, actively
managed funds holding Tesla, "I doubt they would vote against Elon
because if you don't believe in Elon, why are you in the stock?"
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Tesla has been fighting negative press for several months over
production bottlenecks for its Model 3 sedan, crashes involving its cars
and doubts raised by Wall Street over its cash position.
Union-affiliated investment adviser CtW Investment Group is attempting
to unseat three Tesla directors it says lack qualifications or
independence, including investor Antonio Gracias, Tesla's lead
independent director; James Murdoch, the CEO of Twenty-First Century Fox
Inc <FOXA.O>; and sustainable food executive Kimbal Musk, Elon Musk's
brother.
Another investor proposes splitting the chairman and CEO jobs, both of
which Musk fills, arguing the sprawling company has become difficult to
oversee.
Influential proxy advisers Institutional Shareholder Services (ISS) and
Glass Lewis have backed the split of Musk's roles and mostly opposed the
three directors, the only ones up for election this year.
If any of the challenges wins a majority of votes, that could undermine
confidence in Musk at a time when he is counting on workers to pull out
the stops to ramp up production of the Model 3 sedan and as some
analysts expect the company to raise new capital. Shares are down around
7 percent year-to-date.
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Elon Musk listens at a press conference following the first launch
of a SpaceX Falcon Heavy rocket at the Kennedy Space Center in Cape
Canaveral, Florida, U.S., February 6, 2018. REUTERS/Joe Skipper/File
Photo
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Tesla says it does not need new funds. Asked about the voting expectations,
Tesla spokesman Kamran Mumtaz referred to filings the company has made that
outline the directors' qualifications. Tesla has said its governance structure
allows it to avoid pressure by short-term investors.
Wild cards that may decide the outcome will be the votes of funds run by T. Rowe
Price Group <TROW.O> and Fidelity Investments, institutions that owned about 9
percent and 8 percent of Tesla stock, respectively, as of the end of March,
trailing only Musk's stake of roughly 20 percent.
T. Rowe Price's Growth Stock Fund <PRGFX.O> broke with Tesla last year and
supported a measure calling for Tesla to have its directors elected annually.
The measure received the support of about 46 percent of shares voted by outside
investors, assuming Musk voted his stake in opposition.
Researcher Proxy Insight found T. Rowe Price and Fidelity, known for their
actively managed funds, last year voted for dissident director slates in proxy
contests more frequently than the largely passive manager BlackRock Inc <BLK.N>.
But voting against specific directors is often seen as a "last resort," said
Nick Dawson, Proxy Insight managing director.
And T. Rowe was supportive of management on a high-profile vote earlier this
year that put Musk on track for what could be the largest executive payout in
corporate history, according to ISS calculations.
Anne Sheehan, who retired earlier this year as head of corporate governance for
the California State Teachers’ Retirement System, said she expected big funds
would vote according to board recommendations and raise any concerns privately
with Musk.
Their message, she said, will be: "If he's a car company, he’s got to produce
cars."
(Reporting by Ross Kerber in Boston; Editing by Peter Henderson and Matthew
Lewis)
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