The BIG Vote at Tesla, plus investors keep forgetting who sets pay and Crown Castle’s proxy win

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of May 27, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. Female power at DuPont

2. A CFO named Butch

3. A proxy cage fight at Crown Castle that includes a son-in-law named Tripp

4. Progressive shareholders at Wingstop

5. And on the Big Vote, a man named Elon.

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Trade Wire - BUY/SELL

Top Stories:

1. Let’s start at DuPont, where it was announced that CEO Edward Breen will transition to the role as full-time Executive Chair in June.

1. The new CEO will be Lori Koch, who is currently CFO.

2. The new CFO will be Antonella Franzen

2. The new CFO at Raymond James Financial will be Jonathan (“Butch”) Oorlog, Jr. That’s it. Just wanted to report that a man named Butch will be the head of numbers at a financial services company. Which makes sense when you realize it is headquartered in Florida.

3. A leadership change was announced at Neurocrine Biosciences: Kevin Gorman will be replaced by Kyle Gano. But, of course,Kevin will remain on the board in order to irritate Kyle.

4. There’s a new director at Lockheed Martin: her name is Heather Wilson. Heather served as the Secretary of the U.S. Air Force from 2017-2019. This means there will now be 4 Lockheed Martin directors with direct Air Force connections, including CEO James Taiclet.

5. And at Morgan Stanley, Executive Chair James Gorman announced that he will be leaving the board at the end of 2024.

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PROXY CAGE MATCH

1. The proxy cage match is over at Crown Castle. All four dissident directors received the average support of about 6% of Crown Castle shareholders. The nominees were led by co-founder and former CEO Ted Miller, his son-in-law Tripp Rice, and Crown Castle’s founding CFO Charles Green. 

1. Glass Lewis supported former CEO Ted Miller and founding CFO Charles Green but no other candidates, while ISS supported none of the four dissident nominees.

2. Previously, Crown Castle staved off an activist campaign by Elliott Management in December through a cooperation agreement and leadership change, prompting Miller to begin his own battle for board supremacy.

3. Miller left Crown Castle more than 20 years ago, but argued that his candidates, which included his son-in-law, possessed strategic insight that Crown Castle’s 12 incumbent directors, including Elliott partner Jason Genrich, lacked.

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VOTE RESULTS TABLE 

Moving over to our vote results table, I looked at 50 AGMs over the past week. Once again the vast majority of directors received well over 90% support. Only 5 directors (out of roughly 500) received more than 20% votes withheld: 

1. Align Technology: Joseph Lacob 20% NO

2. Celsius Holdings: Cheryl Miller 25% NO

1. Caroline Levy 19% NO, Joyce Russell 19% NO

3. Wingstop: Kate S. Lavelle 23% NO, Kilandigalu (Kay) M. Madati 22% NO, Michael J. Skipworth 22% NO

While not a large cap company, I wanted to briefly mention Beyond Meat. The fakemeat company’s share price was $235 in 2019; $125 at the beginning of 2021; $65 in 2022; $14 in 2023; 9$ in 2024; and is currently $7.26. Despite this horrible downward trajectory for shareholders: all three directors up for election received the approval of more than 96% of shareholders.

There continues to be wide support for pay practices. Only 6 companies showed considerable dissent:

1. The true winners of the week are the members of the Compensation Committee at Vornado Realty Trust. Despite the fact that 43% of voters said NO on Say on Pay, Pay Chair Daniel Tisch and Pay Committee members William Helman IV, Raymond McGuire, and Beatrice Hamza received 96% support from Vornado shareholders.

2. Other companies where shareholders were pissed at pay include:

1. 24% NO at Ross Stores

2. 23% NO at Amazon.com

1. Another company where the Pay committee all received high support despite poorly written pay pactrices: 97% average support

3. Other companies over 20% NO on Say on Pay include:

1. Xcel Energy (22%)

2. Morgan Stanley (25%)

3. Permian Resources (20%)

4. And while it’s not a large cap company, it’s worth noting that 76% of shareholders said a big fat NO to pay practices at JetBlue Airways. Pay Chair Teri McClure 30% NO

Moving over to the world of Shareholder proposals. Let’s start with the victories:

1. At Wingstop of all places, a proposal by The Accountability Board requesting a Greenhouse Gas Emissions Report received the support of 52% of the vote

2. And at Dexcom, 51% said YES to a Transparency in Lobbying proposal brought by John Chevedden

Next up are the almost victories:

1. So close at American Tower:

1. SHP Special Meeting 45% YES

2. SHP Disclosure of Racial and Gender Pay Gaps 49% YES

2. Three moral victories at JPMorgan Chase

1. SHP Independent Chair 43% YES

2. SHP indigenous peoples' rights indicators 30% YES

3. SHP Excessive Golden Parachutes 41% YES

3. At Nextera Energy

1. SHP Board Matrix 41% YES

1. New York City Employees’ Retirement System: “request that the Board disclose  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”

2. SHP Climate Lobbying Report 33% YES

4. And at McDonalds

1. SHP requesting additional disclosure regarding poultry welfare 36% YES

And finally, here are my favorite oddities:

1. Despite all the successes with simple majority voting so far in 2024:

1. Only 7% said YES at Thermo Fisher

2. On that note, remember how I said 41% of shareholders said YES to limit Excessive Golden Parachutes at JPMorgan Chase? At CVS Health, only 6% said YES to the same proposal.

3. The most SHPs were at Amazon.com. 14 of them. They all failed.

4. There were two interesting attempts at compensation reform:

1. At Tenet Healthcare: a SHP requesting a report on plans to integrate ESG metrics into executive compensation, only 5% said YES (International Brotherhood of Teamsters General Fund)

2. At PayPal: SHP asking for Stockholder Approval of Director Compensation 3% YES

5.  And finally, two great ones at CVS Health:

1. A proposal to prohibit the re-nomination of any director who fails to receive a majority vote 18% YES

2. And a proposal requesting a policy requiring our directors to disclose their expected allocation of hours among all formal commitments 3% YES: from the anti-ESG National Center for Public Policy Research. In the proxy they refer to ISS as “Independent Shareholder Services” 2 out of 3 ain’t bad

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THE BIG VOTE

TESLA

AGM Date: May 22, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Elon Musk 21%

2. Vanguard: 7%

3. BlackRock: 6%

2. Performance outliers:

1. Overall: .472

1. Joseph Gebbia .345

2. EBITDA .500

1. James Murdoch .346

3. TSR .647

1. Joseph Gebbia .412

4. Carbon .748

1. n/a

5. Controversies .029

1. Kathleen Wilson-Thompson .436 

1. Board stuff

1. Committees

1. Audit

2. Compensation

3. ​Nominating and Corporate Governance

4. ​Disclosure Controls

1. oversees compliance and risks associated with the terms of the consent agreement between the SEC and the Company, and the controls and processes governing the Company's and its senior executives' disclosures and/or public statements that relate to the Company

2. Skills

3. Diversity Gaps

1. Female Power Gap %/%

1. Industry average female influence = %

2. Diversity Power Gap %/%

1. Industry average diversity influence = %

3. Any diversity %/%

4. Insider influence: %

1. Industry average %

5. Other

1. “The Board believes that gender and minority representation is a key element in achieving the broad range of perspectives that the Board seeks among its members.”

Matt notes:

Let me caveat everything I’m about to recommend by giving the listeners… listener?... some context. We’ve been saying for literally years this board is a joke, from the brother that got reelected multiple times to the fact that Musk has outsized influence to the enormity of the pay package to Musk’s horrible personality and its effect on the brand.  I even did a podcast in September of 2018 at MSCI about balancing governance with mercurial founder types, comparing the situation with Musk to both Steve Jobs and Nolan Bushnell.  

Now everyone is on that train, and there’s nothing new to say there really.  The Delaware court summarized pretty neatly the insular, cozy problem that is the board and how Elon runs it.  Our data shows Elon as having more than 60% of the influence on the board, but that probably UNDERstates his power.  He got paid and unpaid already, and he is an incremental CEO at 5 companies with no accountability at any of them.

So here’s what I think the investor problem is and the counterintuitive solution - and the problem isn’t “do I pay Musk” or “do I reject this board”.

PROBLEM

How do you salvage Tesla the asset from Musk the personality?

The ASSET: Tesla - this is what you own, not Musk or his other shit

• Tesla still trades at 45 PE ratio - while GM trades at a 5.4, Ford trades at a 12, Toyota at a 8.5, Honda at a 7, even BYD is an 18

• Even if you DON’T consider Tesla a “car company” (even though it MAKES CARS and that’s it’s ENTIRE REVENUE STREAM), Alphabet and MSFT are in the 30s, Apple high 20s, and Nvidia is really one of few off the charts at 90 - but Tesla at 45 is still more than most of the AI companies that have existing revenue streams

• So built in to the stock price is the “Musk premium” - the only publicly available way to own the cult of personality that is Musk

• Tesla is effectively a form of meme stock - “cult” stock - there are some clear correlations between the pandemic, meme stock craze and Tesla’s trading value (and the car purchases)

• If Tesla traded at a “car stock” price, even a GREAT car stock price, it would trade somewhere in the $50/share range - a massive 77% decrease in shareholder value

• This is the “investor fear” premium - “if we lose Musk and become a ‘car’ company, our value drops by more than three quarters”

• Institutional owners are closer to holding the bag

• When Musk sold $7bn of Tesla stock to buy Twitter, institutional ownership went from ~15% of share to ~30% of shares, now up to 45% (52% of float) - meaning institutions doubled their exposure to the asset as Musk reduced his exposure in a one to one trade

MUSK: This is what you DO NOT own but are afraid of losing access to (for some reason)

• The “Musk premium” is eroding

• He is an incremental CEO, and barely

• You can get a car company stock without the Nazi symbols in the bathroom, union quashing, anti-DEI/semitism/etc founder, limited attention span, and professionally run boards/management teams

• His primary use case for Tesla isn’t about a passion for cars and environmental issues

• Tesla is a liquid piggy bank, his other companies are not

• Tesla is a means to an end to fund every other venture

• But investors OWN Tesla, not other ventures necessarily

• Musk is leaving no matter what you do

• Either he sticks around a little while, long enough to keep using shareholder capital to fund his other ventures or until he gets totally bored, OR he leaves immediately if shareholders reject his pay and turn off the piggy bank

The BREAKUP: If Musk leaves no matter what, how do you want it to end?

• So do you want Musk to leave a little later or right now?

Proposal 1: Election of 2 Directors

Annual Elections for ALL directors? NO

UP FOR REELECTION:

1. James Murdoch 51 m 2917 and 3%

1. Former CEO Twenty-First Century Fox and Sky

2. Kimball Musk 51 m 2004 7%

1. Brother

CONTINUING DIRECTORS:

1. Elon Musk 52 m 2004 69%

1. CEO; CEO SpaceX; CEP x.Ai; CTO X/Twitter

2. Votes Against Last AGM: 5% 2023

2. Robyn Denholm 60 f 2014 AcnD 5%

1. Chair (2018-); Operating Partner VC firm Blackbird Ventures; former CFO at Telstra and Juniper Networks

2. Votes Against Last AGM: 26% 2023

3. Ira Ehrenpreis 55 m 2007 CN 3%

1. Founder VC firm DBL Partners

2. Votes Against Last AGM:

4. ​Joe Gebbia 42 m 2022 a 0%

1. Co-founder Airbnb; director Airbnb (2009-)

2. Votes Against Last AGM:

5. ​​JB Straubel 48 m 2023 10%

1. Co-founder and former CTO Tesla

2. Votes Against Last AGM: 14% 2023

6. ​Kathleen Wilson-Thompson 66 f 2018 cnd 4%

1. Former EVP Walgreens; director at Wolverine World Wide (2021-) and McKesson (2022-)

2. Votes Against Last AGM:

Matt:

Before we get into the director recommendations - which are simple, vote out both directors up for election - there are two shareholder proposals that matter more than pay or directors or Texas.  

Proposal 6:

Jim McRitchie’s proposal to reduce terms to 1 year, effectively killing the classified board

• You ABSOLUTELY MUST vote for this to save the asset Tesla since the Musk cult will leave and you need to populate the board Uber-style with skilled professionals starting next year to carry the asset into post-Musk years

Proposal 7: 

John Chevedden’s simple majority vote

• Chevedden’s proposal says a majority of shareholders ALREADY liked this idea, but not enough to get by the 66 2/3rds vote required - Musk owned 20.8% of shares in 2020 and Ellison owned 1.7% of shares, all of which presumably voted “No”, and independent institutional ownership was basically 15% of shares

IF both Proposal 7 and Proposal 6 pass, investors are set up next year to begin planning an inevitable post-Musk Tesla

The Post Elon Skills Gap

• Interim CEO

• Straubel was Tesla’s CTO and basically the incoming interim CEO

• Spares institutional knowledge loss ex-Musk

• Board knowledge - NOT CARS

• Need to fundamentally ask what Tesla will be - cars, autodriving/software, electrification/chargers, all of those plus… AI?

• Current Non-Exec board basically is finance - ex-Straubel, ex-Musks - and retail/software

• Future board absolutely need engineering background, and Straubel can’t be it if he’s the new CEO

• Board also needs PROFESSIONALS, not sycophants - it needs the Uber cleanse, which investors should expect will take at least 5 years to complete

• I can’t believe I’m saying this, but why not an Uber board member trade?  Dara or Ron Sugar for Tesla?

• I LOVE John Dabiri for this board - professor, mechanical engineer, California Institute of Technology, one of the most accomplished humans, on the Nvidia board so deep exposure to AI

• Elon’s core knowledge set is money raising and engineering/technology - Straubel will replace some of it, but you’ll need more relevant software experience and money raisers, not just audit types

• Need international exposure - China, India, Europe - as Tesla expands markets and competes beyond “selling cars”

Recommendation:

• NO on Kimbal Musk

• NO on James Murdoch

• Engage with the sham Nominating Committee and prepare to slate directors using proxy access in 2025

Proposal 2: Say on Pay

1. 9% NO in 2023

1. 8% NO in 2022

2. Changes include:

3. Pay

Proposal 3: Redomestication of Tesla from Delaware to Texas

1. Proposal Three and Proposal Four are being presented for votes of the Company’s stockholders following the recommendations of a special committee of the Board (the “Special Committee”) and the Board. The findings and recommendations of the Special Committee and the Board are presented in Proposal Three and Proposal Four, which follow this summary. Kathleen Wilson-Thompson is the sole member of the Special Committee. 

Matt:

If you vote for Texas, you undermine any ability you have to reconstitute Tesla when Musk leaves.  Vote against.

Proposal 4: Ratify the 100% performance-based stock option award to Elon Musk that was proposed to and approved by stockholders in 2018

1. Proposal Three and Proposal Four are being presented for votes of the Company’s stockholders following the recommendations of a special committee of the Board (the “Special Committee”) and the Board. The findings and recommendations of the Special Committee and the Board are presented in Proposal Three and Proposal Four, which follow this summary. Kathleen Wilson-Thompson is the sole member of the Special Committee. 

Matt:

Understand this about the pay packages: Tesla is Musk’s public piggy bank, NOT a company.  No CEO who loves their company also runs SIMULTANEOUSLY FIVE OTHER COMPANIES.

The pay merit question are ridiculous on their face, though - Musk had to prove the original pay package process was legitimately conducted, which the court found it was NOT.  This vote is an attempt to both end run around the court AND use the “now informed” shareholder vote in appeal to get the original court decision tossed, since the burden would move from “the process was flawed” to “prove it wasn’t worth it now”.  He’s also asking you to pay him for past performance, not future - but ONLY the performance he wants you to focus on.  The justification of the massive package was to keep him around and focused on Tesla, as well - while Tesla has gone up, the pay DID NOT KEEP HIM FOCUSED - he’s so much less focused now.  More money, or the re-ratification, doesn’t suddenly magically focus him now.

But forget the legal question, this is a social question though: 

• Voting YES ensures Musk stays for a year or two lingering, maybe he turns it into a taxi company or a robot company or an “AI” company (not likely, more likely he sells the AI from Xai that was trained on X user data to Tesla and builds all new cars using materials designed by SpaceX, all at shareholder expense).

• Voting NO ensures Musk quits - he’ll fight, but there’s no way he sticks around if investors reject him, he’s proven over and over rejection is not an option.

So shareholders - do you want to let Musk raid the piggy bank again, diluting you now but keeping him around for the short-term while you set up a professional group of… professionals… to run your asset, OR do you want him gone quickly and rebuild without that cloud?  

That’s the vote, and I… very oddly… am going to recommend paying him again, as loathe as I am to do it.  The other way to think of it is you pay him, maintain the Musk premium while you sell down.  I’m saying this KNOWING it’s not worth it.

Recommendation: Re-ratify pay, since the most important votes are 1 year terms and simple majority

Proposal 5: Auditor

1.  PricewaterhouseCoopers 1% NO 2023

Proposal 6: SHP Reduction of Director Terms to One Year

1. James McRitchie

2. Tesla: “current Certificate of Incorporation and Bylaws require the affirmative vote of at least 66 2∕3% of the total outstanding shares entitled to vote in order to approve an amendment to reduce the terms of directors. Without achieving the required stockholder participation rate, the Board would not have the authority to implement declassification even if it wished to do so”

3. “As disclosed in our 2023 Proxy Statement, the Board has determined that, once we have achieved a total stockholder participation rate of at least 65% at a stockholder meeting, the Board will again propose Certification of Incorporation and Bylaw amendments to eliminate supermajority voting requirements. To the extent such proposal to eliminate supermajority voting requirements achieves the required threshold to pass, it will unlock a gateway for our Board and stockholders to adopt further stockholder-driven governance actions, including, without limitation, the declassification of the Board”

Proposal 7: SHP Simple Majority Voting

1. John Chevedden

1. “This proposal topic was approved by more than a majority of Tesla shareholders at the 2020 Tesla annual meeting. Thus it should have been adopted in 2020. The responsibility for this proposal topic not being adopted now falls on Mr. Ira Ehrenpreis who chairs the Tesla Corporate Governance Committee. Shareholders can vote against Mr. Ehrenpreis as a sign that they are impatient in regard to the long overdue adoption of this proposal topic.”

2. Tesla: “ the affirmative vote of at least 662∕3% of the total outstanding shares entitled to vote is required to approve such amendments, such proposals cannot pass unless we achieve such a stockholder participation rate. Accordingly, as disclosed in the proxy materials distributed in connection with the Company’s 2023 annual meeting of stockholders (the “2023 Proxy Statement”), the Board determined that once we have achieved a total stockholder participation rate of at least 65% at a stockholder meeting, the Board will again propose certificate of incorporation and bylaw amendments to eliminate supermajority voting requirements.”

3. “The stockholder proponent stated that, because “this proposal topic was approved by more than a majority of Tesla stockholders at the 2020 annual meeting … it should have been adopted in 2020.” This statement is inaccurate and demonstrates a substantial lack of understanding not only of governance and Tesla’s governing documents, but also of our prior actions and disclosures. In fact, following the simple majority approval of the similar 2020 proposal, Tesla put forth a proposal for adoption of amendments to our certificate of incorporation and bylaws to eliminate applicable supermajority voting requirements in our 2021 proxy statement. Therefore, the actions of the Nominating and Corporate Governance Committee and its Chair, Ira Ehrenpreis, and the Board, were appropriately responsive to the majority-supported 2020 proposal, and stockholder were asked to vote on the matter.”

Proposal 8: SHP Annual Reporting on Anti-Harassment and Discrimination Efforts

1. Comptroller of the State of New York, which is the Trustee of the New York State Common Retirement Fund

2. 47% YES in 2022

Proposal 9: SHP Adoption of a Freedom of Association and Collective Bargaining Policy

1. SOC Investment Group

2. 32% YES in 2022

Proposal 10: SHP Reporting on Effects and Risks Associated with Electromagnetic Radiation and Wireless Technologies

1. Lendri Purcell

2. “Although I can afford it, I am personally driving a 2017 Chevy Bolt with very low electromagnetic field (EMF) exposures because I am reluctant to upgrade to a Tesla which has much higher EMF levels.”

Proposal 11: SHP Adopting Targets and Reporting on Metrics to Assess the Feasibility of Integrating Sustainability Metrics into Senior Executive Compensation Plans

1. Tulipshare Securities Limited

Proposal 12: SHP Committing to a Moratorium on Sourcing Minerals from Deep Sea Mining

1. As You Sow

Matt:

Summary of recommendations

• Vote NO on Kimbal Musk

• Vote NO on James Murdoch

• Vote YES on pay

• Vote YES on proposal 6 (declassified board)

• Vote YES on proposal 7 (simple majority vote)

• Vote NO on everything else

DAMION:

That’s the Proxy Countdown for the week of May 27, 2024. Join us next week when we jump back into the Alternative Democracy pool... forever on the lookout for shareholder sharks, floating bandaids, and wayward directors.

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