Tesla’s board silent since Elon Musk’s $56 billion pay package revoked

Two weeks after Delaware court ruled Tesla Although the company must eliminate Elon Musk’s $56 billion compensation package, the company’s board of directors has remained mum on what the decision means for shareholders and what’s next for the mercurial CEO.

In a 200-page opinion published on January 30, UK Chancellor of the Exchequer Kathaleen McCormick called the pay plan the largest in the history of a listed company and said it was “supported by The people of Musk’s favor” agree. Since then, Musk has lashed out at the court, Posted on X“, “Never register your company in Delaware,” and said Tesla will hold a shareholder vote to move the company’s registration location to Texas.

Tesla has not yet filed with the Securities and Exchange Commission to notify shareholders of the ruling.

The decision comes shortly after Musk said he was pushing for more control of Tesla, saying in a post on X in mid-January that he wanted to play a key role in turning the company into a leader in artificial intelligence and robotics. The leader previously gained about 25% of voting control. Musk has already established an artificial intelligence company called xAI outside of Tesla.

The next step in the compensation case is an “execution order” that will be negotiated by the court, Musk’s team and lawyers representing shareholder Richard Tornetta. Richard Tornetta is a former heavy metal drummer and a plaintiff in a 2018 lawsuit filed on behalf of the owners. Tesla investors.

As shareholders wait for answers, Tesla eight-person board of directorsMembers including Musk, his brother Kimbal, Chairman Robyn Denholm and former Tesla technical chief JB Straubel have remained silent, avoiding any public comments.

CNBC sent requests for more information to Tesla’s investor relations department, Musk and some board members. None of them got an answer.

Tornetta’s lead attorney, Greg Varallo, head of the Delaware office of Bernstein Litowitz Berger & Grossmann, told CNBC that in theory, Musk and his legal team could still pursue a last-minute settlement. While Varallo said he was unaware of Musk’s plans, he said he expected Musk to appeal to the Delaware Supreme Court.

“I think your odds are very good,” Vararo said.

Tel Aviv University law professor Kirby Casteel also predicted that Musk would appeal the ruling. Kastiel is not involved in the lawsuit, but he co-authored a 2023 Paper An article in the University of Washington Law Review titled “Superstar CEOs and Corporate Law” was cited in McCormick’s ruling.

“Given the high stakes involved, Tesla will likely appeal this decision,” Castile said in an email. If the appeal is unsuccessful, Castile said, “it will not be relevant to any of his new Any compensation arrangements must be assessed in light of McCormick’s decision.”

In the 2018 CEO compensation plan, Tesla’s board granted Musk a dozen tranches of stock options that will vest in 2022 and are based on milestones, many of which are focused on rising stock prices. .

From the beginning of 2018 to the end of 2022, Tesla’s stock price soared nearly 500% as Musk pledged to build Tesla not only into a dominant electric car brand, but also into a robotaxi company and a solar power giant. The S&P 500 gained 44% during the period, while the Nasdaq gained 52%.

Eric Talley, a professor at Columbia Law School, told CNBC that if the ruling stands, Musk will lose his options but not any shares he previously held. The move will reduce the number of shares outstanding and potentially increase the value of each share investors hold.

Talley, who is not involved in the case, said: “A large number of options will return to Tesla’s coffers, which greatly increases the value of the stock.” On the other hand, Talley pointed out, “Tesla has a grumpy CEO. He probably wants to take his ball and go home. So far, the trade shows those two factors have been washed away.”

Tesla shares have fallen slightly since the Delaware court’s ruling late last month. They are down nearly 25% this year, while the major averages are up.

Musk expressed a strong preference Following the court’s decision, he moved his business out of Delaware and encouraged others to do the same.

he Change registration place Documents disclosed last week showed that his brain-computer interface company Neuralink moved from Delaware to Nevada. He has also been a big supporter of Texas in recent years, personally moving there from California and building massive complexes for SpaceX and Tesla in the state, which has no personal income tax and a much lower business tax rate.

Author Walter Isaacson, who published a 688-page biography of Musk last year, told CNBC’s “Squawk Box” on Monday that if the ruling is not overturned, “it’s going to hurt the state of Delaware.” .”

“People say, ‘Wait, wait, you mean five years after something happened, eight years after something happened, you’re going to go back and undo it?’” Isaacson said.

Ann Lipton, a professor at Tulane University School of Law, has a different view.

“This is a very thorough opinion, and the Supreme Court should have great respect for the trial court’s factual findings,” Lipton said.

As for what shareholders should now demand from Tesla’s board of directors, Castile said, “Both Tornetta and recent media reports about Musk emphasize the importance of accurate and detailed disclosure of the relationship between controlling shareholders and directors. “

Castile said that with “superstar CEOs” running the show, there is a more fundamental issue at play: corporate governance.

“As long as the CEO is viewed as a star and the company relies on the CEO’s vision and leadership, even nominally independent directors—those without close ties to the CEO—will have a hard time monitoring the CEO’s behavior. ,”He said.

Castile also said the decision could leave Musk and Tesla more vulnerable to other types of lawsuits.

“Plaintiffs may have a better opportunity to advance their claims by using Tornetta’s findings to demonstrate that a majority of Tesla’s board of directors is not independent of Musk,” he said. “To mitigate this risk, Tesla There needs to be a significant increase in board independence and the nomination of new independent directors who do not have close ties to Musk.”

watch: Isaacson says Elon Musk has a lot of ‘incoming missiles’ coming from all directions