With a settlement brokered with the Securities and Exchange Commission in its rear-view mirror, Tesla now faces new controversies as the Justice Department and disgruntled investors circle their wagons.

In September, the SEC sued Tesla for online comments made by CEO Elon Musk about possibly taking the publicly traded company private. The Commission, citing a lack of evidence that any such deal was a reality, sued the company in the U.S. District Court for the Southern District of New York on charges that the post misled investors.

On Oct. 16, U.S. District Judge Alison Nathan approved the resulting settlement. Without admitting or denying any of the SEC’s allegations, Tesla and Musk agreed to each pay a civil penalty of $20 million.

As part of the deal, there will be no restriction on Musk’s ability to continue to serve as Tesla’s CEO. There will also be no prohibition on serving as a director, although he must resign as chairman for at least three years.

Additionally, within 90 days of filing settlement documents, Tesla must appoint two additional independent directors and create a permanent board committee of independent directors charged with overseeing controls governing public statements.

The company will also, as it wrote in a post-settlement SEC filing, “further enhance controls with respect to [Musk’s] public communications regarding Tesla and to pre-approve any such written communications that contain, or reasonably could contain, information material to Tesla or its stockholders.” 

With that enforcement hurdle cleared, Tesla now faces allegations that it inflated the production numbers of its Model 3 line.

Those accusations, the subject of a Justice Department investigation, were reported by Tesla in its quarterly Form 10-Q filing with the SEC.

“The DOJ has also asked us to voluntarily provide it with information about each of these matters and is investigating,” it says. “Aside from the settlement with the SEC relating to Mr. Musk’s statement that he was considering taking Tesla private, there have not been any developments in these matters that we deem to be material, and to our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred.”

“As is our normal practice, we have been cooperating and will continue to cooperate with government authorities,” Tesla added. “Should the government decide to pursue an enforcement action, there exists the possibility of a material adverse impact on our business, results of operation, prospects, cash flows, and financial position.”

Tesla also disclosed ongoing securities litigation relating to the production of Model 3 vehicles. A stockholder class action was recently filed in the U.S. District Court for the Northern District of California against Tesla, two of its current officers, and a former officer. 

The lawsuit claims that Tesla supposedly made materially false and misleading statements regarding the company’s preparedness to produce Model 3 vehicles. The complaint alleges violations of federal securities laws and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla securities from May 4, 2016, to Oct. 6, 2017. 

The company intends to file a motion to dismiss the complaint.

Critics are also taking the opportunity to leverage recent controversies into a demand for corporate governance changes.

Among them is CtW Investment Group, which works with pension funds sponsored by unions and holds nearly $774 billion in total assets under management. It outlined its call for enhancing “long-term shareholder returns through active ownership” in a Nov. 1 letter from Executive Director Dieter Waizenegger to Tesla’s independent directors.   

The letter—referencing the settlement between Tesla, Musk, and the SEC—calls for a “renewal of the board.”

“Over the last two years, investors have sought to engage with the board on the issues that have led to the current crisis magnified by the SEC settlement,” CtW wrote. “Given the lack of responsiveness to fundamental governance concerns, we believe that shareholders need new stewards on the board. Now is the time for the board to finally take decisive action on best practice corporate governance reforms.”

Among those reforms, CtW wants Tesla to “create and disclose a robust refreshment plan, including a timeline for director departures.” That timeline should set deadlines on the off-rotation of non-independent directors.

“While meeting the technical definition of independence, five of eight current non-executive directors have professional or personal ties to Mr. Musk that, in light of recent events, appear to have put at risk their ability to exercise independent judgment,” the letter says.

Other demands include:

Improving director independence;

Engaging with shareholders to create a suitable pool of director candidates;

Enhancing the board’s skill sets by developing a diverse candidate pool with industry-specific, human capital management, regulatory, and corporate governance expertise;

Permanently separating the positions of CEO and chairman;

Adopting proxy access and annual director elections; and

Strengthening executive pay clawback provisions.

“We note that adding two independent directors as mandated by the SEC settlement, while an improvement, does not by itself amount to a robust and credible commitment to change the board’s composition, particularly when it is not clear which, if any, directors will be rotated off the board in the future,” the letter says. “Given that shareholders have been calling for improvements to the board’s structure with little effect, more concrete steps are needed to demonstrate to shareholders that the company is taking these concerns seriously.” 

CtW adds that it is “equally important for Tesla to recruit directors with professional experience related to the company’s current and near-term challenges.”

Specifically, it wrote, Tesla’s board still lacks directors with manufacturing experience, “which would be deeply beneficial because of the company’s dependence on the Model 3’s aggressive production schedule in order to achieve profitability.”

California recently passed a law that would require California-based, publicly traded companies with boards of six or more directors to have at least three female directors by 2021. It is a requirement that Tesla currently does not meet.

“We hope the timing of this new law coupled with the terms of the SEC settlement will embolden the board to adopt a policy requiring that when seeking new directors, the pool of candidates should include qualified women and minorities,” CtW wrote. 

The firm asked Tesla (and has done so directly and in-person to directors) to consider including a directors’ matrix in future proxy statements (as many large companies have done) that includes qualifications, as well as gender and racial/ethnic diversity, “so that investors can see how these attributes align with Tesla’s ever-evolving growth and strategy—and where there may be gaps.”

The letter also urged Tesla to recruit qualified female and minority directors by next year, and it demands that Musk, beyond the SEC’s settlement, be permanently barred from serving as chairman.

“The reputational damage and harm to shareholder value over the last year demonstrates the need for autonomous board leadership, distinct from the CEO’s role,” CtW wrote, adding that such a move would “show a proactive commitment to restoring the company’s corporate integrity and reputation over the long term.”