Investors pushing Elon Musk to loosen control of Tesla board

Tesla's bid on Solar City opened up an enormous can of worms.

The backlash over Tesla founder Elon Musk's proposal to make an all-stock purchase of solar installer Solar City, worth up to $2.8 billion, continues. An investor group is proposing a number of measures to weaken Musk's stranglehold over the automaker.

CtW Investments Group, which holds over 200,000 shares in Tesla – over $42 million worth of stock as of this writing – as part of its management of union-based pension funds, wants to make a number of changes to the company's governance. Automotive News reports that includes adding two independent directors to the automaker's board, divorcing the roles of chairman and CEO, allowing shareholders to have a say in the annual election of board members, and banning immediate family of board members from serving concurrently on the board. CtW also wants two independent directors to form a committee to analyze the Solar City deal.

"The fiercely negative reaction to the proposed transaction only highlights the flawed (corporate governance) process and underscores our continuing concern about governance at the company," CtW Executive Director Dieter Waizenegger told AN. "We believe the board of directors at Tesla must be restructured in order to insure that stockholder interests are protected during this proposed acquisition and going forward."

CtW's anger, or indeed the furor of every opponent to Tesla's Solar City purchase, isn't difficult to understand. It all seems remarkably shady when you realize that Musk is Solar City's largest shareholder and its chairman, or that the company's CEO is Elon's first cousin. Also damning? Six of Solar City's seven board members have direct ties to the Tesla CEO.

"This is particularly questionable when six out of our seven board members have ties to SolarCity," CtW said in a letter to Tesla, obtained by The Daily Caller. "This raises a serious question about whose interests the board is serving – the stockholders of Tesla or the stockholders of SolarCity."

Nepotism and self-serving moves aside, as CNBC explains, Musk's desire for Tesla to purchase Solar City is just bad business. The company is a walking disaster.

"[Solar City] is a company that Goldman Sachs said is the single weakest competitor in its entire sector," Crossing Wall Street editor Eddy Elfenbein said on CNBC's Power Lunch on Wednesday. "The company is burning tons of cash."

Another expert, tech analyst Craig Johnson, echoed Elfenbein's analysis, telling Power Lunch "the risk-reward on the charts clearly are not favorable, and that's in sync with what you've been hearing about on the fundamental side, so more downside yet to come."

Musk, for his part, has tried to play innocent, saying, "We've tried to do this in a way that's as fair as possible, and really going beyond what's legally required to make it not just legally correct, but morally correct."

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