I think Elon Musk’s compensation package will haunt Tesla for years as lawsuits already pile up.
Everyone points the finger at those responsible for this situation. Here is my opinion.
We’re less than two weeks away from Tesla’s annual shareholder meeting, where we’ll learn the results of the shareholder vote on Musk’s compensation and his company’s move to Texas.
Many shareholders mistakenly believe that the problem will end there.
Shareholders will vote for or against these two proposals. The truth is that not much will change after June 13.
If shareholders vote yes again on the package, at best, it will serve as evidence that shareholders still support the deal for the appeals process in this case, which is still months away.
As for the company’s move to Texas, many shareholders believe it would allow Tesla to circumvent the Delaware judge’s ruling. However, Tesla and the judge recently had communications on the matter, and Tesla reassured the judge that they would continue to litigate the case in its jurisdiction: Delaware.
Next up is a hearing on the compensation sought by the shareholder lawyers who sued Musk and Tesla, which amounts to a ridiculous $6 billion.
The compensation will likely be significantly reduced by the judge, but they will likely still receive a good salary, and the vultures are already circling for more.
A new lawsuit was filed last week against directors of Musk and Tesla for alleged insider trading by the CEO and breach of fiduciary duties by board members.
Regardless of the results of the votes that take place later this month, Tesla will likely face further lawsuits over its corporate governance, which is increasingly exposed by Tesla and Musk’s reaction to the decision of the judge regarding his remuneration program.
For example, Musk threatened not to work on AI products at Tesla if he didn’t get 25% control of the company, although he said Tesla was worthless without AI .
Electrek’s point of view
I think I’ve managed to distill my thoughts on Elon’s compensation package at Tesla into something a little clearer. I’ve been reporting on this for months and I’m sick of it, but unfortunately I think this will be a story for months, if not years to come.
Like many Tesla shareholders, I was not happy that Elon sold shares from his previous CEO compensation package to buy Twitter.
But I understand that it is his right to do so.
He can do whatever he wants with his money, but he has lost credibility in my eyes because I remember him saying this:
He got a lot of people to believe in Tesla through pledges like this, then he broke it to buy Twitter.
But Fred is old.
OK, he also said this:
And then he sold billions of dollars worth of Tesla stock over the next few months.
All good. Not good for his credibility, but again, good for his money.
Now, what about this new 2018 compensation plan?
Do I really believe that Elon is seeking control of 25% of Tesla because he is afraid of what Tesla’s AI will do if he has less control? No, I don’t believe it for a single second.
Am I afraid that he will give up his shares in a very poorly planned way like he did the first time? Yes I am.
But again, it’s kind of his money and he can do whatever he wants with it. I think he’s done an incredible job at Tesla, especially between 2018 and 2021. He deserves it.
However, I can believe all of this and still understand why Judge McCormick had to invalidate the package in her decision.
There is no doubt that this litigation began because the lawyers saw an opportunity to make money. They recruited a willing Tesla shareholder with only 9 shares. But you have to ask yourself, why was there an opportunity?
And that’s because of Elon’s board and Tesla. They saw that Tesla’s board presented the package as being negotiated between independent board members and Elon. They looked at these directors and found that they were anything but independent.
The only member of the remuneration committee who could have been classified as independent would have been Robin Denholm. She became chairman of Tesla after Musk had to give up his seat as part of a settlement with the SEC following his failed attempt to take Tesla private, but she also received juicy compensation worth tens of millions of dollars. dollars for a job that Elon himself had held. said it was worthless.
Suspicious.
The lawyers bet that, based on this situation, they would find many more problems with the way this historic compensation program was set up, and they were right.
They found problems like the board not negotiating the package beyond aligning the tranches with Tesla’s own projections, with Elon’s point person on the package being his own specialist lawyer in divorce who was also Tesla’s general counsel at the time, blurring the lines as to who he actually worked for. for, and more.
These are all things that could have influenced shareholders’ decision to vote for or against the package. The judge had to overturn it.
But instead of addressing the governance issues highlighted by the judge that led to this situation in the first place, Tesla, obviously run by Elon, decided to argue that there is no problem and that the The only reason we shareholders are in this situation is because a politically motivated judge decided to take away our right to decide for ourselves what Elon should receive in compensation.
Massive allegations like that require solid evidence and, as far as I know, there is no solid evidence that the judge did anything other than follow the law. The only thing I’ve seen posted by Elon and his fans is the fact that the judge worked for a firm that represented President Biden in the past, but it was one of the largest firms in Delaware, hence is from Biden. so this is not surprising and does not prove any wrongdoing.
This narrative that the situation is politically motivated is simply an attempt to ignore and distract from Tesla’s governance issues.
At this point, I think Tesla and its shareholders would be much better off addressing these issues, returning to the negotiating table on a compensation agreement negotiated in good faith, and then returning to shareholders for a vote.
I even think the deal could be for the same amount minus any costs Tesla incurs related to this issue, like legal fees and all the advertising the company is spending on this vote.
The alternative is, more likely than not, years of costly litigation and this dark cloud over Tesla.
But a big part of the problem is that Elon doesn’t seem interested in establishing proper governance at Tesla, because he’s not well suited to be an executive at a public company. This is part of why he tried to take Tesla private – unsuccessfully, I might add.
Given the rumors that he chooses not to deny, he seems happy to leave this choice to shareholders: good corporate governance at Tesla or Elon. You can’t have both.
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