Black Rock on side of angels in demanding Tesla shake up

The fund manager backed a motion calling for the installation of a chairman above Elon Musk. Even though it was comfortably defeated, and might not have changed much had it been passed, the principle matters 

James Moore
Chief Business Commentator
Friday 31 August 2018 16:43
Comments
Tesla boss Elon Musk: Some investors think a chairman should be hired at Tesla to exercise oversight
Tesla boss Elon Musk: Some investors think a chairman should be hired at Tesla to exercise oversight

Does it matter that Black Rock, one of the world’s biggest and most powerful fund managers, voted in favour of a resolution calling for a chairman to be installed above Elon Musk at Tesla, the electronic car company he runs?

Not in practical terms. The motion was resoundingly defeated - more than 86m shares opposed it against compared to 17m in favour.

Those who bought into Tesla when it listed in New York weren’t so much buying shares in an electronic car company as they were buying shares in Elon Musk. And they knew that. They reaffirmed it when they agreed to a salary package that could pay him an absurd £2.6bn in stock options for hitting targets.

Even were the motion to have passed, it is debatable whether it would actually change anything. Is there any potential chairman out there who could prevent Elon from being Elon, and attempting to rival Donald Trump in the business of generating controversy via Twitter when not running multiple companies?

Probably not.

But it does matter. While Black Rock may have been on a hiding to nothing, its action demonstrates a willingness to take a stand on behalf of the investors it manages money for. That’s laudable when so many of its peers sit on their hands in the face of even the most egregious of provocations.

It is also important in terms of the principle.

The roots of corporate failures can frequently found in failures of governance; in over powerful executives operating with little or no effective oversight from supine non executive directors or institutional investors, and coming a cropper as a result.

Take a look at some of the reports issued in the wake of the financial crisis, back in the spotlight thanks to its ten year anniversary, and you’ll see that writ large.

Sure some of the failures, Royal Bank of Scotland and HBoS among them, ticked all the corporate governance boxes. They had the independent chairs. Just chairs who didn’t do their jobs.

And as I said, installing one at Tesla wouldn’t necessarily change anything.

But good governance standards, including that the roles of chairman and chief executive should be separated to avoid concentrating too much power in the hands of one person, are established for a reason.

And there are good reasons for Black Rock to at least make the attempt to hold the line.

In much of corporate American those standards are in retreat, notably Silicon Valley where too many investors have acceded to the issue of shares with unequal voting rights (also opposed by the fund manager) in the hopes of landing a big fish.

A non voting piece of Google is certainly more attractive than a voting share in Pedestrian Holdings Ltd. The problem is that if Google gets away with it then other, less well run, companies will try it, including the peers of Pedestrian Holdings. Therein lies the potential road to ruin.

This should not by any means be read as a hagiography. Black Rock has, for example, justifiably been criticised in the past for approving many fat cat pay awards.

But when it comes to Tesla it’s on the side of the angels, and more importantly, of its investors and it deserves credit for the stance it has taken.

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