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What to Expect from the Tesla/Musk Vote Today

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Shareholders in Tesla (TSLA - Free Report) will convene on Tuesday at the company’s Mountain View, CA headquarters for the annual Meeting of Stockholders.  In addition to the usual company presentation on operations and a likely Q&A session for investors, the most pressing issue on the agenda is a vote to require that the position of Chairman of Tesla’s board of directors be filled by an independent party.


Currently, the roles of both Chairman of the Board and CEO are filled by Elon Musk, and a “Yes” vote would strip Musk of the Chairman role. Presumably, any independent chairman would significantly limit Musk’s control over the company going forward.


The vote comes at the behest of an individual shareholder, Jing Zhao of Concord, California, who owned just 12 shares of Tesla stock - allowing him to attend the meeting and propose a vote on the issue of the chairman seat. He has however gained the backing of two well-known proxy advisory services, Glass Lewis and Institutional Shareholder Services who have advised investors that they feel Musk may be “distracted” by his dual role at the company as well as his business interests in unrelated firms SpaceX and The Boring Company.


Three other votes are also on the ballot, the retention of 3 other board members, ratify the appointment of Pricewaterhousecooper’s as Tesla’s independent accounting firm and the issue of whether log-time shareholders should have the ability to place director nominees on the proxy ballot.


The vote to remove Musk from the board is mathematically unlikely to succeed. Musk himself owns more than 20% of outstanding shares and institutional investors own another 61%, concentrated mostly in the hands of five large money managers – T Rowe Price, Fidelity, Baillie Gifford, Vanguard and Blackrock.


Tesla itself has recommended against removing Musk, arguing that . (See the company’s voting recommendations below)



For current or prospective investors, however, even if the effort is unsuccessful, the vote tallies could still be important. If any significant number of “remove” votes are received, it probably signifies an erosion of confidence in Musk on the part of big institutional investors.  A significant investment in the Tesla story is effectively an investment in Musk himself. His vision and goals are exactly the story shareholders are buying as the company is not yet profitable.


If any significant amount of institutionally held shares voted for the removal of Musk as Chairman, a logical conclusion would be that one or more of the big institutional owners was growing impatient with the company’s current trajectory. With those top 5 having ownership of between 6 and 15 million shares each*, major selling pressure would likely take a while to materialize, but we’ll still be watching intently for and signs of any cracks in the foundation.


*As of the most recent 13F filings, institution ownership may have changed slightly since then.
 

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