Pension funds object to SpaceX governance ahead of blockbuster IPO
Calpers, Calstrs and New York’s comptrollers have all expressed concern about SpaceX’s governance, which gives Elon Musk ‘virtually unheard of’ control over the company, ahead of its IPO in a few weeks (Ronaldo Schemidt/AFP via Getty Images)
The looming SpaceX IPO is the talk of the investment sector at the moment.
When Elon Musk’s spaceflight company lists in a couple of weeks it is set to be the largest IPO in history, with SpaceX hoping to achieve a value of $1.8tn.
A lot of investors are very excited about this and the IPO is expected to lead to the launch of a raft of ETFs focused around space exploration.
But some very large asset owners are less enthusiastic.
Calpers chief executive Marcie Frost, together with the comptrollers for New York State and New York City - who between them manage more than $1tn in pension assets - have written to Musk to express concern about the IPO and the corporate governance involved.
Danish pension fund AkademikerPension, which manages about $25bn, has placed SpaceX on its exclusion list because of its “catastrophic” governance structures.
These include the fact that under the proposals of the IPO Musk could only be removed as chief executive and chair of the board by holders of Class B shares - which he himself controls. The company will also not have an independent compensation committee.
Class B shares would carry 10 votes per share while the Class A shares offered to the public only carry one vote per share. Based on this Musk would hold 79 per cent of the voting power.
The letter from Calpers and the New York comptrollers said: “The principle that voting rights should be proportionate to economic interest is considered a hallmark of robust corporate governance.
“Removal of the company’s most powerful officer would, as a mathematical matter, require [Musk’s] own vote – essentially making him unfireable without his own consent. This level of insulation from accountability is virtually unheard of among any other large US issuer whose governing documents foreclose accountability to public owners on these terms.
“Compounding this, SpaceX reportedly intends to elect controlled-company status, which would allow it to bypass any requirements for a majority-independent board or for independent compensation and nominating committees, all while Musk simultaneously serves as CEO, CTO and chair on a nine-person board.”
Calstrs, which the pension fund which manages $408bn on behalf of Californian teachers, also said it opposes the proposed governance structure.
Aeisha Mastagni, senior portfolio manager in the office of the CIO at Calstrs, said: “We support effective and diverse boards that operate independently from company executives and the one-share, one-vote principle.
“Companies with existing unequal voting structures should disclose and implement processes to move to a one-share, one-vote structure.
“Under the proposed SpaceX voting structure, its chief executive cannot be removed without him voting to remove himself. The proposed governance structure from SpaceX disregards the need for board independence and a voting structure that is proportional to all shareholders.”
AkademikerPension chief investment officer Anders Schelde said: “In our view, Tesla already has the worst governance structure among the world’s largest listed companies — and SpaceX is even worse.”
ABP, one of Europe’s biggest pension funds at $619bn, said publicly listed companies are assessed against its investment criteria.
Those investment criteria stipulate that ABP will not invest in companies which “violate international norms and standards” on governance.
(For its part, SpaceX says Musk’s “leadership, vision and expertise are critical to the development of [its] technologies and the execution of [its] business strategy”.)
But the problem is slightly more complex than just deciding to ignore SpaceX stock once it floats: due to its potential valuation the company is almost certain to be admitted to major indices such as the S&P 500 and the Nasdaq Composite. In fact there is talk of this admission being fast tracked.
This means any asset owner who invests in US equities passively will have no choice but to gain exposure to SpaceX. As Calpers and the New York comptrollers say, SpaceX is likely to become an “unavoidable holding in our portfolios”.
(Incidentally we reached out to several other large pension funds, including HostPlus, Norges Bank, Ontario Teachers and the Universities Superannuation Scheme but they declined to comment)
