Why Cathie Wood Calls Out Proxy Firms Over Elon Musk’s Controversial $1 Trillion Pay Package

Cathie Wood, CEO of ARK Invest, voiced strong support for Tesla and its CEO, Elon Musk, amidst rising backlash against Musk’s proposed $1 trillion pay package. Wood, who famously invested in Tesla at just $13 per share, pointed out that the real issue lies with the financial infrastructure resisting such compensation, rather than Tesla itself.

Over the weekend, she highlighted the excessive power proxy advisory firms hold over shareholder decisions. These firms, like Institutional Shareholder Services (ISS) and Glass-Lewis, recently recommended that shareholders reject Musk’s pay deal at Tesla’s upcoming meeting. Currently, Musk holds about 13% of Tesla, but the new package could give him nearly 29%.

Wood criticized the relationship between proxy firms and index funds, which hold significant voting power due to the number of shares they manage. “Index funds don’t do research, yet they dominate institutional voting. Our investment system is broken,” she stated. This is a bold claim, considering major index funds like Vanguard, State Street, and BlackRock do conduct research to inform their voting.

Interestingly, proxy firms argued against Musk’s pay package due to concerns about its potential dilution of existing shares and the leniency it grants to Tesla’s board in setting performance goals. This decision has sparked diverse opinions within the investment community.

Russell Rhoads, a finance professor at Indiana University, pointed out a key difference between active and passive investing. Investors in active funds expect management to engage with companies to drive changes, while passive investors typically do not seek to influence company operations. This raises questions about the role and responsibility of investors regarding corporate governance.

Tesla countered the proxy firms’ arguments, pointing out that they overlook the successful pay package approved in 2018, which awarded Musk $56 billion over ten years. The company criticized Glass-Lewis and ISS for their “one-size-fits-all” approach that may not serve shareholder interests effectively.

In a letter to the SEC, a coalition of investors, including pension fund representatives, urged shareholders to vote against Musk’s pay structure, suggesting it could dilute their power in the long run. They are vocal about their skepticism that more money will keep Musk focused on Tesla, given his vast wealth tied to other ventures.

Despite the pushback, Wood remains optimistic that retail investors, who own about 40% of Tesla’s voting shares, will support the pay package. “Retail investors are likely to dominate the vote again. America!” she said.

As this debate unfolds, it reflects larger trends in investment governance and shareholder rights. With passive investing on the rise, voices like Wood’s, advocating for proactive engagement, raise questions about how companies can balance the interests of all stakeholders—especially in a rapidly evolving tech landscape.

For more insight into corporate governance, you can check out the Securities and Exchange Commission for their guidelines on shareholder voting.

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