Musk steps in to provide insurance for Tesla board


Elon Musk has stepped in to provide personal liability insurance for directors of electric carmaker Tesla, after premiums soared after recent legal claims against the board.

The unusual personal guarantee adds a twist to an unconventional boardroom relationship that has brought criticism from governance experts over the sway Mr Musk, Tesla’s founder and chief executive, has had over the way the company is run.

The personal insurance offer was made after Tesla said it had “determined not to renew its directors and officers liability insurance policy for the 2019-2020 year due to disproportionately high premiums quoted by insurance companies”.

Mr Musk had himself “agreed with Tesla to personally provide coverage substantially equivalent to such a policy for a one-year period”, the company said in a regulatory filing.

Tesla’s board has been the target of a number of legal actions claiming that it failed to maintain sufficient independence in controlling its impulsive chief executive.

Early this year, all the directors apart from Mr Musk agreed to provisionally settle a shareholder lawsuit over Tesla’s acquisition of SolarCity, the clean energy company where Mr Musk was also a director. Tesla said the $60m settlement “would be entirely paid under the applicable insurance policy”.

Mr Musk was due to appear in his own defence in court in Delaware before the coronavirus crisis brought the case to a standstill. 

A federal court earlier this month cleared the way for another shareholder lawsuit against Tesla and its chief executive over Mr Musk’s claim, in a series of tweets in 2018, that he was close to taking the company private. The board and Mr Musk are also facing a trial next year stemming from a shareholder action over a pay award to Mr Musk that was valued in 2018 at $2.6bn.

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The personal insurance policy from the chief executive drew immediate criticism from governance experts. 

“If [the directors’] job is to oversee him and he’s paying their insurance, that creates a relationship that threatens that,” said Charles Elson, a professor of corporate governance at the University of Delaware. “If he reneges on payment, what will that do to the relationship?”

Tesla said it did not believe the insurance offer threatened its boardroom independence because it was “intended to replace an ordinary course insurance policy”, and because the arrangement “is governed by a binding agreement with Tesla as to which Mr Musk does not have unilateral discretion to perform”.

The personal insurance was disclosed in a revised copy of Tesla’s annual report, which was filed with the Securities and Exchange Commission on Tuesday. The company did not reveal the existence of the indemnification agreement in the first version of the report in February, even though Tesla said in the new filing that the one-year indemnification arrangement was put in place some time in 2019.



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