TESLA MOTORS, INC. | Key-person risk at TESLA MOTORS, INC.

Status
5.84% votes in favour
AGM date
Previous AGM date
Proposal number
5
Resolution details
Company ticker
TSLA
Lead filer
Sumtris ehf
Resolution ask
Report on or disclose
ESG theme
  • Governance
ESG sub-theme
  • Other
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Consumer Discretionary
Company HQ country
United States
Resolved clause
RESOLVED, Tesla, Inc. (“Tesla” or “Company”) shareholders ask the Board of Directors to oversee the preparation and maintenance of a publicly-disclosed report on Tesla’s Key-Person Risk, including identification of key persons and actions to ameliorate the impacts of their potential loss.
Supporting statement
Support: Tesla is frequently cited as a prominent example of a company that has so-called Key-Person Risk, due to the prominence of its CEO and the lack of a clear public succession plan or strategy to ameliorate the impacts of his loss.

According to a 2018 Morgan Stanley report, in 2017 59 S&P 500 CEOs left their companies, and these companies then underperformed the market by 11% in the subsequent 12 months. Loss of a key person can be due to decisions from the key person to part with the company; the company to part with the key person; or outside factors (such as untimely death or disability)—and all of these are rarely easy to foresee long in advance.

The standard procedure for dealing with Key-Person Risk is:
1. Identify key persons.
2. Document processes and procedures for their succession.
3. Spread knowledge / cross- train successors.
4. Manage communication with stakeholders
5. Financial mitigation of key-person loss impacts

At present, Tesla shareholders can have little confidence that said risk has been at all ameliorated. Tesla specifically cites as a risk in its Q3 10-Q: “We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer” - offering no explanation of how it plans to deal with said risk. We ask the board to present to shareholders a clear and unambiguous Key-Person Risk amelioration strategy, documenting that all of the above five points have been met so that shareholders can be confident that the company will have qualified successors in mind who are prepared to lead the company to success in the event of a key-person departure.

How other organisations have declared their voting intentions

Organisation nameDeclared voting intentionsRationale
Anima SgrAgainstAs it is believed that the risks inherent in this request outweigh the potential benefits. Although it is important to highlight the prominence of CEO Musk as a key person, it appears that the proposal request would extend to individuals other than the CEO, if appropriately identified as a key person. The public disclosure of key personnel and the identification of individuals considered qualified successors appears to be an overly broad request which may present other risks to the company, including the departure of executives voluntarily or through recruitment by other companies. In general, matters of succession planning are best left to the board and at this time there is no significant concern that the board has failed in this duty.
Rothschild & co Asset ManagementAgainst

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