- Elon Musk will be able to help pick the person who will succeed him as chairman of Tesla.
- Musk is stepping down from the role as a result of his settlement agreement with the Securities and Exchange Commission (SEC) over his series of tweets about possibly taking the company private – including the infamous “funding secured” tweet.
- He will also be able to help pick the two new independent directors the SEC ordered Tesla to add to its board.
- Tesla’s board has already been under fire for being too deferential to Musk.
- Business Insider got a copy of the settlement documents, which lay out the specific terms that Tesla and Musk agreed to.
Elon Musk may soon be out as chairman of Tesla, but he’ll be able to pick his successor and serve with that person on the electric car company’s board.
The settlement agreements Musk and Tesla reached with the Securities and Exchange Commission don’t include any kind of bar on Musk’s continued service as a director of the car company. The agreements, copies of which Business Insider obtained from the Securities and Exchange Commission on Wednesday, also do not include any provision that would bar him from voting his shares in favour of or against nominees to the Tesla’s board.
That means that despite being forced to step down as chairman as part of those agreements, Musk could continue to have a lot of sway over the body that is supposed to oversee him as CEO. Musk is Tesla’s largest shareholder, holding some 22% of the company’s outstanding shares at the end of last year.
“Musk is still the CEO and his friends still control the board, so tell me what really changed,” said Lynn Turner, a former chief accountant of the Securities and Exchange Commission, in an interview with Business Insider.
The settlements were related to Musk’s infamous “funding secured” tweets regarding a potential move to take Tesla public. The SEC charged that he made those statements on Twitter knowing or having reason to know that they were false and misleading. After Musk initially rejected a settlement offer from the agency, which the SEC responded to by suing him, Tesla and its CEO accepted revised settlement agreements that are somewhat harsher.
Tesla’s board has drawn fire for being too deferential to Musk
Under those agreements, which still have to be approved by a federal court, Tesla agreed to replace Musk with an independent chairman and to name two new independent directors. Tesla agreed to name a new chairman within 45 days of the settlement, and to name the new directors within 90 days.
The agreements implicitly allow Musk to be involved in both of those sets of choices. They don’t include any provision that would prohibit him from voting, as a director of Tesla, on its new chairman or its new directors. And they don’t include any bar on him taking part in a shareholder vote on the new board members.
The settlements also allow Tesla to name as its chairman one of its existing board members, rather than one of the new directors its been ordered to add. The company’s current directors, which include Musk’s brother, Kimbal, have come under repeated fire for being too deferential to and not adequately overseeing Musk.
“The SEC stayed away [from] the broader corporate governance and management issues,” Turner said.
Also as part of the settlements, Musk and the company will each pay a $US20 million fine to the SEC. However, in what could be seen as a win for shareholders, the agreements essentially require Musk and the company to pay the fines out of their own funds. Neither can ask that they be paid out of the company’s insurance policies.
Additionally, the agreement requires its board to create within 90 days a permanent committee comprised solely of independent directors that will oversee the implementation of the settlement SEC and set guidelines for top executives’ communications with the public. The agreement also requires Tesla to hire or designate a securities law attorney to ensure that posts made by Musk and other executives to Twitter follow SEC disclosure rules.
You can read the full settlement agreements below:
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