By Dana Hull
Tesla Inc. appointed a director who's been on its board for years to replace Elon Musk as chairman, stirring suspicion as to whether the mercurial CEO will be restrained after costly run-ins with securities regulators.
Robyn Denholm, 55, will assume the chairman's role immediately. A director since 2014, she'll leave her position as chief financial officer and head of strategy at Australian telecommunications company Telstra Corp. after a six-month notice period.
The appointment marks the end of an era for Musk, 47, who became chairman when he led a $7.5 million initial investment in Tesla in April 2004. His problematic August tweets about trying to take the company private caused months of chaos and culminated in a settlement with the U.S. Securities and Exchange Commission. The agency sought to improve the governance of a board long criticized for being too closely aligned with its billionaire leader.
"While Denholm is technically an independent member of the board, she has been part of the Musk team for some time now and that suggests she will not be up to the task of checking Musk's worst instincts," said Stephen Diamond, a professor of law at Santa Clara University who specializes in corporate governance. "And, of course, that was the whole point of the SEC settlement."
Tesla rose as much as 2.7% to $357.58 as of 10:05 a.m. in New York, bolstered by speculation that the carmaker may qualify to enter the S&P 500 Index next year. The shares were up 12% this year through the close Wednesday.
Ceding the role of chairman was a condition of the accord Musk reached with the SEC in September to settle fraud charges related to his tweets on taking the company private.
In addition to a three-year ban from serving in the job, Musk and Tesla agreed that the company would add two new independent directors to the board by late December. Tesla is actively searching to fill those posts.
"This is a good first step," Dieter Waizenegger, executive director of Ctw Investment Group, said of Denholm's appointment. Ctw, a union-affiliated activist group, had been critical of Tesla's corporate governance.
"The ball is now in her court," Waizenegger said by email. "Can she overhaul the board and revamp the relationship with the CEO to guide the company toward sustainable success?"
Denholm, who has only been in the Telstra CFO job for a little more than a month, said she plans to devote herself full time to Tesla when her obligations to the Melbourne-based telecommunications company are complete. She won't take on another job.
"I believe in this company, I believe in its mission and I look forward to helping Elon and the Tesla team achieve sustainable profitability and drive long-term shareholder value," Denholm said in the statement.
Toyota, Sun Micro
Denholm's appointment comes as a bit of a surprise after she ruled herself out to Australian media just a month ago. It's not clear what convinced her to give up the CFO job at one of the country's most prominent companies for the high-profile task of chairing Tesla.
Denholm worked previously at Toyota Motor Corp., Sun Microsystems Inc. and Juniper Networks Inc., where she was chief financial and operations officer.
"Robyn has extensive experience in both the tech and auto industries, and she has made significant contributions as a Tesla board member over the past four years in helping us become a profitable company," Musk said in the statement. "I look forward to working even more closely with Robyn as we continue accelerating the advent of sustainable energy."
Once Denholm leaves Telstra, she'll be paid an annual cash retainer of $300,000 along with stock options, according to Tesla. Last year, she was the highest-compensated director on the board, making $4.9 million, with 99% of that coming in the form of option awards.
Tesla's board, which includes Musk's brother Kimbal, has long come under fire from corporate governance experts for lacking independence and being comprised of Musk loyalists.
Several are investors in or directors at SpaceX, the closely held rocket company that Musk also runs. That includes Steve Jurvetson, who's been on a leave of absence for roughly a year, since accusations of misconduct spurred his resignation from the venture capital firm he co-founded.
The new chairman isn't likely to influence Musk's behavior, said Frank Schwope, an analyst with NordLB in Germany.
"She's from Musk's inner circle and is unlikely to put obstacles in the way of decisions," Schwope said. "This exercise, brought on by the SEC deal, was to teach Musk a lesson and this is an easy way to fulfill the requirement."
Directors will create a permanent committee to ensure implementation of the terms of the SEC settlement, which include setting up procedures and controls to oversee Musk's communications -- including his tweets. Tesla has to employ or designate a securities lawyer to review messages that senior officers send through Twitter and other social media.
CtW and officials representing major pension funds in four states have called on Tesla to go beyond the terms of the SEC settlement to fix its corporate governance issues. In a letter last week, the group called for the creation and release of a plan to refresh the board and for timelines to be set for some members to leave.
— With assistance by Elisabeth Behrmann