A Securities and Exchange Commission settlement that requires Tesla Inc. to replace Elon Musk with a new chairman and add two independent directors doesn't go far enough to fix the company's corporate governance woes, according to a union-affiliated investor group and officials representing major pension funds in five states.
The investors lay out a series of measures the board should take to boost oversight and better hold Mr. Musk accountable as CEO. The billionaire's run-in with the SEC over allegations of securities fraud have added urgency to changes the investors say are long overdue.
"Shareholders need new stewards on the board," the investors wrote in a letter Thursday to three of Tesla's independent directors. The signatories are officials with California, Connecticut, Oregon, New York state and city pension funds, plus CtW Investment Group, which is affiliated with a federation of unions.
Tesla representatives didn't have immediate comment.
The group wrote that its members help oversee about $774 billion in combined assets and are substantial investors in Tesla. They call for the creation and release of a plan to refresh the board and for timelines to be set for some directors to leave.
The investors also ask that the board permanently separate the chairman and CEO positions, a step beyond the SEC settlement that prevents Mr. Musk from being able to hold both jobs for three years.
"There needs to be a complete overhaul of this board, and the new chair needs to be a strong, accomplished individual who can oversee Elon Musk," Aeisha Mastagni, a portfolio manager in corporate governance for the $229.2 billion California State Teachers' Retirement System, West Sacramento, said by phone.
"Tesla is a sterling example of how insular boards fail companies and shareholders alike," New York City Comptroller Scott Stringer, one of the letter signatories, said in an emailed statement. "A truly independent and refreshed board with directors from diverse backgrounds would be able to provide the strong oversight the company clearly needs."
In their letter Thursday, the investors also called for the board to adopt proxy-access rights that would give long-term shareholders the ability to nominate their own slate of directors.
They also asked for Tesla to improve the diversity of the board and find directors who have experience that "specifically match the company's strategy and current skill sets."