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Sustainable Finance Newsletter - No victory lap for Tesla activists

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By Ross Kerber

June 19 (Reuters) -While Tesla CEO Elon Musk got a win last week when shareholders approved his record $56-billion pay deal, detailed results disclosed on Friday showed investors also backed two corporate-governance reforms that could provide more oversight at the electric carmaker.

I thought proponents of those measures would be jumping up and down when the details came in, but their reaction was more muted when I got in touch. You can read more about the situation below - and don't miss a rare bit of pension-fund bipartisanship that my reporting turned up.

Also included this week are links to our coverage of Exxon's lawsuit over shareholder resolutions being tossed aside, and an explainer about today's Juneteenth holiday.

Please connect with me on LinkedIn. If you have a news tip, potential content, or general thoughts you can email me at ross.kerber@thomsonreuters.com

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No victory lap for Tesla activists

Shareholder activists focused on corporate governance scored a pair of wins at Tesla's annual meeting last week, but the filers doubt much change will result.

Items 6 and 7 on the company's ballot each won support from 54% of votes cast. The items called for Tesla TSLA.O to cut its director terms to one year from three years and to require only simple majority votes for certain governance shifts rather than the current two-thirds standard.

Both changes could make it easier for investors to bring in more independent-minded directors to oversee Musk. But both also need further board action to take effect. James McRitchie, a private California investor who filed item 6, said he doesn't expect Tesla directors to rush to follow through with changes that give investors more say.

"This passed but as far as getting it enacted, I'm pessimistic," he said. Item 7 filer John Chevedden said he also does not foresee reforms, especially with Musk in line to own more than 20% of the company. "He'll make sure this proposal never gets adopted," Chevedden said.

Their dour comments reflect Tesla's internal rules. Opposing McRitchie's resolution, Tesla's board said it would need the vote of at least 66-2/3% of its investors to change directors' terms, and pledged to work to revamp its bylaws once it achieved a "total stockholder participation rate" of 65% at a shareholder meeting.

Tesla did not respond to requests for comment.

Moving to annual director elections would be a mainstream change. Among the S&P 500, about 89% of companies have boards whose directors are all elected annually, according to The Conference Board and partner analytics firm ESGAUGE. The figure has been around that level for years, but as recently as 2011 it was only at 68%,a separate study showed.

One sign of the reforms' popularity: disclosures show items 6 & 7 both received support from pension funds in the Democratic-led states of New York and California, and from pension funds in Republican-led states Florida and Texas.

A spokesperson for the Florida State Board of Administration, which oversees pension money, told me via e-mail that its policy is that "annual elections for directors provide increased accountability and corporate performance." In a disclosure, the Florida board said it voted for item 7 because the current so-called supermajority vote requirements "can impede shareholders' ability to approve ballot items that are in their interests."

New York City Comptroller Brad Lander said via email that Tesla's board should implement both changes to respect the will of the majority of shareholders. "We strongly support proposals that enhance board accountability at Tesla," Lander said.

A wild card for Tesla is that with its high share of retail ownership, its board has to lobby hard to pass measures that might be easier for other companies to sell. (I once called Tesla's retail investors a bunch of loafers, but it looks like they showed up last week).

Matt Moscardi, a co-founder of corporate governance firm Free Float Analytics, said many companies would move to shorten director terms after last week's votes, but Tesla is hard to predict. "If it was a normal company, they would be rallying investor support to declassify," Moscardi said.

Company News

A senior executive for Chery Auto, [RIC:RIC:CHERY.UL] China's largest automaker by export volume, said it plans to start electric vehicle production by year-end at its factory in Spain, even as Beijing slammed EU tariffs on Chinese EVs as protectionist behavior.

UBS's UBSG.S takeover of Credit Suisse has fed "a creeping anxiety" about the enlarged bank's market strength, my colleagues write. The worry is the merger will narrow financing options for Switzerland's high-cost, export-oriented companies.

Billionaire Warren Buffett's Berkshire Hathaway Inc BRKa.N acquired another 2.95 million shares in Occidental Petroleum OXY.N, bringing his stake in the U.S. oil producer's common stock to nearly 29%.

On my radar

Today is Juneteenth, a combination of the words June and 19th, a day marking the emancipation of enslaved Black Americans. It rose in prominence following 2020 protests over police killings and became a U.S. federal holiday in 2021.

BlackRock BLK.N added policies from proxy adviser Egan-Jones to the options available under its "Voting Choice" program for clients. In addition to Egan-Jones' standard policy, clients can have their shares voted according to its "Wealth-Focused" policy which "does not prioritize environmental or social goals."

U.S. District Court Judge Mark Pittman dismissed a lawsuit Exxon Mobil XOM.N had filed against activist investor Arjuna Capital, after it agreed not to pursue future proxy proposals. Pittman dismissed the case without prejudice, meaning Exxon could refile.

California Senate Majority Leader Lena Gonzalez said she will shelve until next year SB 252, a bill that would require the state's big pension funds to divest from fossil-fuel companies. In a press release, Gonzalez cited proposed amendments that would "allow for two decades of continued investing in Big Oil."

Reporting by Ross Kerber in Boston; Editing by David Gregorio and Rod Nickel


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