Minority shareholders, supported by proxy advisors ISS, Glass Lewis and PIRC, want enhanced disclosure from Tesla’s board on employee and human rights-related risks, as Elon Musk’s firm stages a so-called Battery Day and its AGM tomorrow (Tuesday 22 September).
Tesla shareholders will have a say on two proposals that raise concerns on a number of ESG-related issues – it coincides with the first shareholder vote to elect the new board director Hiro Mizuno, former CIO of Japan’s government pension fund GPIF.
First, the Sisters of the Good Shepherd New York Province want additional reporting on how the firm addresses human rights impacts on its supply chain, including alleged union-busting practices and employee safety within its own operations.
Second, a separate proposal by Nia Impact Capital has taken issue with Tesla’s policy of compulsory employee arbitration, which could preclude the use of employment tribunals, asking for more details on the repercussions of this policy.
Baillie Gifford, Tesla’s the largest institutional shareholder, declined to comment on whether it will support fellow shareholders
A third proposal by gadfly and shareholder rights advocate James McRitchie focuses on anti-entrenchment board practices, asking Tesla to replace supermajorities for a simple majority standard of shareholder votes on a number of issues.
PIRC, ISS and Glass Lewis recommended shareholders to vote in favour of the three proposals. Egan-Jones backed the proposal of the Sisters of the Good Shepherd on additional human rights reporting and McRitchie’s proposal against supermajorities.
The Sisters argued that investors are currently not able to determine how the company is meeting its responsibility to respect human rights, despite Tesla’s reporting against its own Supplier Code of Conduct and Conflict Minerals Policy.
They stated: “Tesla is among five companies facing a class action lawsuit filed on behalf of 14 children and parents from the Democratic Republic of Congo. The company does not provide sufficient evidence to demonstrate its cobalt supply chain is free of child labour. Conflict minerals, steel, lithium, rubber, mica, and electronics may also present human rights risks for Tesla.”
The Sisters are also concerned with the ruling of a federal judge that in 2019 found that violations of labour laws “on 12 different occasions for preventing employees from exercising their right to unionise, including disciplining and firing employees for union activity”. They raised additional concerns over health and safety issues in certain Tesla plants.
Tesla’s board said these shareholders have mischaracterised its existing reporting, which should not be ignored “simply because the proponent is not subjectively satisfied with the conclusions it draws from them”.
The board said it adopts “the best practices to identify, remedy and audit potential human rights issues”, including third-party standards such as those of the OECD and the Responsible Minerals Initiative.
It added that “employees are free to associate or refrain from associating with any third parties, including labour unions” and that the labour laws violations mentioned have been appealed.
Glass Lewis said the adoption of the proposal would benefit shareholders, “particularly given the myriad allegations concerning the human rights-related implications of the company's operations”.
“The company's employment practices have come under increasing scrutiny and have resulted in a number fines and lawsuits and reputational harm,” it said.
Likewise, ISS supported the proposal, saying the request for additional information is not “overly burdensome”.
ISS said Tesla does not disclose enough details about its mineral audits. For example, the full tally and frequency of audits; or whether suppliers were found to be non-compliant, whether corrective actions were taken, and whether relationships with suppliers were severed for that reason.
ISS added: “While Tesla states that it respects its employees' right to associate or not associate with any third party, in September 2019, an NLRB [National Labour Relations Board] Administrative Law Judge found that Tesla intimidated, threatened, and retaliated against its employees to prevent them from organising a worker's union.”
After Elon Musk, who holds 18.3% of Tesla’s stock, UK asset manager Baillie Gifford, is the largest institutional shareholder with 6.3%. It declined to pre-disclose its proxy voting intentions ahead of tomorrow’s AGM.
Some of the issues raised by the shareholder proposals on human rights reporting are the subject of a legislative initiative in the EU, which might introduce mandatory due diligence on ESG issues for board of directors.