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Tesla’s New Chair Is Part of the Furniture

(Bloomberg Opinion) -- There was a touch of humor in Tesla Inc.’s announcement of a new board chair, and it involved Elon Musk on Twitter, of course. Replying to the company’s own account, the CEO and former chair expressed his excitement about his replacement in the role, Robyn Denholm:

Tesla’s New Chair Is Part of the Furniture

All of which is great, except Denholm isn’t “joining.” She’s been on Tesla’s board for four years and, one presumes, has been working together with Musk already.

Joking and tenses aside, this isn’t an optimal outcome.

That isn’t a comment on Denholm’s career. She has a wealth of senior experience at firms including Australian telco Telstra Corp Ltd., where she was recently appointed chief of finance and strategy, and Juniper Networks, where she was chief of finance and operations. She is, strikingly, leaving Telstra in order to focus on her new role (pending a six-month notice period).

The issue, as Musk’s tweet unintentionally highlighted, is that Denholm has been on the board of Tesla for almost half its life as a public company. This is problematic for two reasons.

The first is that it represents a missed opportunity. Recall that Musk must give up his seat at the head of table in order to settle with the Securities and Exchange Commission, which had accused him of misleading shareholders with his half-baked take-private tweets in August. The broad thrust of that settlement was to fix the lack of effective governance and oversight the bizarre episode exemplified. Besides separating the CEO and chair roles for at least three years, Tesla agreed, among other things, to appoint two new independent directors and institute better controls on the company’s external communication, including Musk’s own.

This gave Tesla a chance to appoint someone from outside the company, preferably someone with extensive experience in automotive manufacturing, and definitely someone who hadn’t worked with Musk before. According to Tesla’s proxy statement, Denholm has some prior experience in finance roles at Toyota Motor Corp. But the real issue is that Tesla settled on an insider when an outsider would have signaled real change.

The second problem is that, as an insider, Denholm has already supposedly been providing independent oversight during some of the most unsettling periods in Tesla’s history; precisely those periods when that oversight seemed — how to put this? — intensely subtle from an outside perspective.

She was, of course, part of the special committee assembled and then disassembled during that whirlwind 17-day take-private whatever-it-was. Denholm was also part of the board that didn’t manage to rein in Musk’s increasingly bizarre Twitter habits — which, in hindsight, look like a prelude to the now infamous “funding secured” missive of August 7. As part of the compensation committee, she also had a role in setting Musk’s gargantuan new pay package earlier this year (which was approved by shareholders after two large proxy-advisory firms gave it a thumbs down). On that front, having received total compensation of almost $5 million in 2017 (virtually all of it in stock options), Denholm was the highest-paid member of a board whose compensation stands far above their peers at similar firms and sits at odds with its apparent usefulness.

Denholm was also, of course, part of the board that approved Tesla’s takeover of SolarCity Corp. in 2016. This deal, which almost doubled Tesla’s debt, was referred to by one proxy-advisory firm as a “thinly veiled bailout plan” for a struggling company where Musk was a major shareholder and chairman and the CEO was his cousin. I was reminded of this in Tesla’s latest quarterly SEC filing. This disclosed that, in August, Tesla cashed out Musk and SolarCity’s former chief technology officer (another cousin) on $82.5 million of promissory notes that were effectively old “Solar Bonds” they had bought from SolarCity shortly after the acquisition was announced.

None of this means Denholm can’t somehow assume a more forceful position as chair and inject some accountability into Tesla’s governance. It just means we haven’t seen much evidence of it thus far. Which rather undermines the whole point of this appointment in the first place.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

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