While this blog is singularly focused on nonprofit governance, there are occasions for learning from the for-profit sector. Today's lesson comes from Tesla (yes the car people). In a recently conducted shareholders meeting as reported by CNBC, one shareholder proposed:
(That the) company to split up its chairman and chief executive roles, both of which are currently held by Elon Musk.... because (the shareholder) said an independent chairman was necessary to prevent conflicts of interest.
A second proposal by a different shareholder proposed:
to remove three Tesla board members up for re-election this year citing they were too close to the CEO to ensure needed independence.
Tesla and Elon Musk have faced a number of production challenges that have resulted in failed goals and the thinking, as I understand it by shareholders is that better oversight by folks who were more arms-length and a chair that was not management could produce better results.
It is of course highly unusual to have the board chair and executive be the same person in a nonprofit. The exception may be for founders who start a nonprofit but for the most part, chairs and execs are not the same person. Does this guarantee transparency, reduce conflicts of interest and ensure more openness, perhaps. But the question as to how arms-length should be the relationship between board and management is much more worth considering for nonprofit boards. Boards members that have been recruited by the executive "tend" but admittedly not always have a greater loyalty to the executive. This loyalty can then lead to a trust that reduces the objective oversight that the otherwise "check-and-balance" relationship could afford and subsequently, more or better results by the organization. While I don't know the research on the cause-and-effect implications of a board that is too close to the executive, my experience in working with boards suggest that the closer relationship, the less deep oversight.
It's likely that the Tesla shareholders, who opted not to accept the leadership change proposals, will have to reconsider their vote as results don't meet their expectations. Nonprofit boards meanwhile should, in my opinion, periodically give attention to their own situation while considering the origin of board members and the relationship of members to the management.