The move is essentially a compliance against the deal Tesla entered with the SEC in September 2018 to settle fraud related charges against Tesla and Elon Musk.
As demanded by the U.S. Securities and Exchange Commission, Tesla Inc’s board has moved to replace Elon Musk as the board’s chairman and has named director Robyn Denholm as a replacement.
The appointment was a requirement in the deal that was brokered in September between Tesla and the SEC to settle fraud charges against Musk and Tesla. According to legal experts, it is not clear if Denholm, who has been on Tesla’s board for the last four years, is independent enough for Tesla to comply with the court-approved settlement.
Denholm, 55, joined Tesla as an independent director in 2014 and is the head of its audit committee. Last year she was paid nearly $5 million, mainly in stock options, by Tesla thus making her the highest remunerated member in its board.
Whether she is independent enough to rein in public outbursts by Musk, who has mocked the SEC as the “Shortseller Enrichment Commission” on Twitter after the fraud charge settlement – is an open question.
Significantly, Denholm was on the board when Musk set production targets for the Model 3 sedan, which were not met; she also sat on the board when Musk tweeted he had secured funding to take Tesla private. This last tweet had prompted the SEC to file fraud charges against him.
The court-approved settlement of those charges requires Tesla to certify, in writing, that it has appointed an “independent” chairman and to provide evidence and exhibits to make its case.
Although the definition of “independent” is typically broad, legal experts opine the court could ultimately conclude Tesla was not in compliance with the letter of the settlement.
“It does violate the spirit of the settlement, which was to change the culture of the board so there was a check on Musk’s worst instincts,” said Stephen Diamond, a professor of corporate governance at Santa Clara University.
The SEC declined to comment beyond the court judgment.
“Musk, I believe, has a ton to do with the selection and he wants to be sure that they can see eye-to-eye,” said Elazar Capital analyst Chaim Siegel.
Top proxy advisers Institutional Shareholder Services and Glass, Lewis & Co had each classified Denholm as an “independent” director of Tesla in reports to the carmaker’s investors earlier this year.
With the news reaching the market, Tesla’s shares rose by 1% to $351.40.