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Delaware Judge Squashes Elon’s $56 Billion Tesla Pay Package

News | Feb 5, 2024

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A Delaware judge has invalidated Elon Musk's $56 billion Tesla pay package, labeling it as "an unfathomable sum" and unfair to shareholders.

This decision, subject to appeal, could lead to governance changes within Tesla, particularly in how the board oversees Musk. The ruling emphasizes concerns regarding the independence of board members and their decision-making processes. This event occurs as Tesla faces growth slowdowns and the electric vehicle sector reassesses demand, potentially affecting Tesla's future valuation and governance structure​​.

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The recent ruling by a Delaware judge voiding Elon Musk's $56 billion Tesla pay package raises significant questions about Tesla's governance and Musk's influence over the company. This ruling, alongside other developments, could have implications for Tesla's valuation and governance moving forward.

Elon Musk's expansive role and influence at Tesla, as highlighted in recent reports, suggest potential governance and fiduciary duty concerns. Musk's comments on shifting AI and robotics development outside Tesla unless he gains more voting control have raised alarms about potential conflicts of interest and the diversion of opportunities from Tesla to Musk's other ventures. This development underscores the complexity of Musk's involvement across multiple companies and the potential impact on Tesla's strategic direction and shareholder value​​.

Governance in Focus

Activist investors are increasingly focusing on Tesla's governance practices following the court's decision. With resolutions proposed at the upcoming shareholder meeting to simplify the process for major corporate changes and to require annual re-election of directors, there's a growing momentum for governance reform. This movement is partly fueled by criticism of the board's perceived lack of independence and its alignment with Musk's interests, highlighting the ongoing debate over corporate governance and shareholder rights at Tesla​​.

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Furthermore, Tesla's governance and Environmental, Social, and Governance (ESG) monitoring have been under scrutiny, especially following the SolarCity acquisition, which was criticized for potential conflicts of interest and questioned for its strategic value. This and other events have led to calls for more stringent governance reforms, emphasizing the need for independent board oversight and addressing concerns over Musk's dual roles as CEO and a major shareholder​​.

The perception of Musk's leadership has also been affected by his activities outside of Tesla, particularly his acquisition of Twitter. Investors have expressed concerns that Musk's focus on Twitter and the resulting sale of Tesla stock to finance the acquisition have negatively impacted Tesla's stock price and investor confidence. The broader concern is the impact of Musk's public statements and actions on Tesla's brand and leadership stability​​.

Concerns of Illegal Drug Use (including Board Members)

The Wall Street Journal reported concerns among Tesla and SpaceX directors about Elon Musk's illegal drug use, including instances of consumption with board members, without any formal investigations or documentation by the board. This issue, along with the Delaware judge's recent criticism of the board's conflicts of interest and ruling against Musk's $55 billion pay package, highlights governance concerns. Musk, managing six companies, has not failed SpaceX's drug tests, and some felt pressured to partake in drugs to maintain their standing in his circle.

Elon Musk posted on X:

Whatever I’m doing, I should obviously keep doing it!  If drugs actually helped improve my net productivity over time, I would definitely take them!

EV Competition Continues to Heat Up

In the last quarter, the Warren Buffett-endorsed BYD outpaced Tesla in electric vehicle sales. Tesla now contends with rivals like Nio and Xpeng. To heighten competition, Chinese EV companies are emphasizing advancements in technology, particularly in self-driving capabilities and battery performance.

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In response, Tesla announced an upgrade to the Model Y's autonomous driving hardware in China, a move by Elon Musk's company to increase sales and counter the growing challenge from local competitors.

Summary

Tesla is at a critical juncture with significant implications for its future governance, valuation, and strategic direction. The company needs to maintain investor confidence while ensuring robust governance practices.


NCFA Jan 2018 resize - Delaware Judge Squashes Elon's $56 Billion Tesla Pay PackageThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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