A Deep Dive Into Tesla’s Corporate Governance Approach

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

---

On Friday, Tesla published its Impact Report for 2021, outlining avoided emissions, factory and facility energy consumption, and energy generated by its solar panels. The report also provided a fascinating deep dive into Tesla’s corporate governance. That section offered a window into the Tesla inner circle decision-making process.

While certainly not as complex as a peer-reviewed white paper, it is a report, after all, and reading reports may not be your thing. So, here’s an overview into the major points behind how Tesla’s corporate governance works, circa 2022.

‌

Sustainability Council: The company’s Sustainability Council, made up of leaders from across Tesla, collects data and prepares the analysis and content of its Impact Report. The Sustainability Council also presents this information to Tesla’s Board of Directors for review.

Board of Directors’ Responsibilities: The Board of Directors serves as a prudent fiduciary for shareholders and oversees the management of Tesla’s business — including reviewing the effectiveness of priorities, initiatives, programs, and the Tesla Impact Report contents. Implicit in this approach is the importance of sound corporate governance. The Board continuously evaluates its corporate governance structure, practices, and policies and weighs stakeholder feedback, including proposals generated at annual meetings. The directors regularly engage with senior management and the Sustainability Council. The Board evaluates the company’s leadership structure; reviews the composition, size, and performance of the Board and its committees; evaluates individual directors; and identifies and evaluates candidates for election or re-election to the Board.

Leadership: Elon Musk (Technoking and Chief Executive Officer), Zachary Kirkhorn (Master of Coin of Tesla and Chief Financial Officer), Andrew Baglino (Senior Vice President, Powertrain and Energy Engineering)

List of Board of Directors: Elon Musk, Robyn M. Denholm, Ira Ehrenpreis, Larry Ellison, Hiro Mizuno, James Murdoch, Kimbal Musk, Kathleen Wilson-Thompson

Employee Communications: In order to provide regular and transparent communication with employees, Tesla employees, among other methods, share their feedback through surveys to identify strengths and opportunities for improvement as well as have access to a whistleblower hotline through which employees can report concerns.

Key Corporate Governance Decisions: Tesla’s corporate governance structure has facilitated several key decisions which might have appeared counter-intuitive to some but which have set up Tesla to achieve long-term success. Some examples include these decisions to:

• Manufacture EVs from the ground up rather than being a mere supplier of EV components;
• Establish an international network of stores, service centers, and Supercharger stations despite regulatory hurdles and the significant capital outlay required to do so;
• Build Gigafactory 1, the largest lithium-ion battery factory in the world, to scale most effectively;
• Expand into energy generation and storage through the acquisition of SolarCity Corporation in 2016 to create a vertically integrated sustainable energy company and empower individual consumers to be their own utility;
• Deploy FSD city streets’ beta software to their fleet to develop complete Full Self-Driving capability in the future; and,
• Compensate Tesla’s CEO only if other shareholders realize tremendous value.

4 Standing Committees: Each member of these committees qualifies as an independent director under the listing standards of NASDAQ.

• Audit Committee: The Audit Committee assists the Board in providing oversight of accounting and financial reporting processes and the audit of its financial statements; compliance with legal and regulatory requirements: the independent auditor’s qualifications, independence, and performance; the organization and performance of the Company’s internal audit function, as well as the Company’s internal accounting and financial controls; treasury and finance matters; risk management, including data privacy and cybersecurity; and, reviews and discusses the accounting assessment of the Impact Report and other ESG disclosures.
• Compensation Committee: The Compensation Committee is responsible for, among other things, discharging the Board’s responsibilities in administering and overseeing Tesla’s compensation policies, plans, and benefit programs; the compensation of Tesla’s executive officers and members of the Board; the administration of the Company’s employee benefit plans; and, the review of human capital management practices related to Tesla’s talent generally, including how Tesla recruits, develops, and retains diverse talent.

• Nominating and Corporate Governance Committee: The Nominating and Corporate Governance Committee is responsible for, among other things, reviewing and making recommendations to the Board on matters concerning corporate governance; Board composition; the identification, evaluation and nomination of director candidates and composition of Board committees; and, conflicts of interest. This Committee also oversees the Company’s Code of Business Ethics and Corporate Governance Guidelines.
• Disclosure Controls Committee: The Disclosure Controls Committee, among other things, implements, reviews, and monitors Tesla’s compliance with applicable legal requirements governing the Company’s and its executive officers’ public disclosures and public statements relating to the Company.

Compensation Philosophy: Tesla rewards its named executive officers based on performance, and equity awards weigh heavily in their total compensation, including awards that vest upon the achievement of clear and measurable milestones. These awards increase in value as Tesla stock price increases, so named executive officers’ incentives are closely aligned with the long-term interests of the company’s stockholders. Tesla has no cash bonus program for any of its named executive officers and generally does not provide any perquisites or tax reimbursements to the named executive officers that are not available to other employees. No named executive officer has any severance or change of control arrangement, except as reflected in Elon Musk’s performance-based 2018 CEO Performance Award.

Data Privacy and Cybersecurity: Tesla is guided legally by its obligations under global privacy laws and regulations and also by customer expectations and its internal Privacy Principles.

• Doing the right thing with data: The company maintains trust by handling data as customers expect, keeping it accurate and complete and properly destroying it when it is no longer needed.
• Building privacy into products from start to finish: Ensuring privacy is an important component when building world-class products and services, from inception to rollout and beyond.
• Giving customers choices about their data: Individuals are in control by having them clear and transparent ways to access, review, manage, and delete their data.
• Maintaining trust through transparency: The company is transparent about the personal data they collect and how they’re using or sharing it so choosing a connected vehicle does not come at the sacrifice of customer privacy.
• Safeguarding personal data: Tesla implements rigorous controls and standards designed to protect the security, confidentiality, and integrity of its data environment.

Human Rights: The ethical treatment of all people and regard for human rights is core to Tesla’s mission of a sustainable future. The company endorses and bases its definition of human rights on the United Nation’s Universal Declaration for Human Rights.

Final Thoughts

The Tesla 2021 Impact Report described how the company strives to be the best on every metric relevant to its mission to accelerate the world’s transition to sustainable energy. To maximize that impact, the company says it plans to continue increasing production volumes and the accessibility of its products. In more concrete terms, this means that by 2030 Tesla is aiming to sell 20 million EVs per year.

Tesla’s corporate governance is essential on that path so that every metric is improved, including the energy and water used to make products, how safe its customers and employees are, and the affordability and accessibility of the company’s products.

Note: All claims are directly sourced from the Tesla 2021 Impact Report.