Tesla may be preparing for a new legal challenge over Elon Musk’s record compensation deal, a Tulane University law professor warned.
On Wednesday, the company urged investors to “restore Tesla shareholder democracy” by ratifying in June the 2018 vote that gave Musk the largest pay package in human history after a Delaware court declared the approval void six years ago due to governance deficiencies.
Framing it as a moral obligation to ensure Musk gets what he already earned rather than illustrating exactly how this will benefit the company, however, Tulane’s Ann Lipton told CNBC that this repetition could end up backfiring on Tesla. American corporations do not exist to be fair to their CEO, but rather to enrich their shareholders.
“They don’t actually have to pay him for the work he did in the past, and that’s exactly the problem,” Lipton said Wednesday. “That kind of unnecessary generosity could easily be considered wasteful, legally, and therefore can only be approved with a unanimous shareholder vote.”
In other words, awarding him a $45 billion deal – down from $56 billion previously due to Tesla’s declining stock price – risks running afoul of laws that prohibit boards of directors from donating assets that belong to their investors.
A Delaware ruling in the case of Saxe vs. Brady since the 1960s it has set standards for what reasonably constitutes excessive and unreasonable waste and spoilage, an act that is legal only if approved by each individual shareholder.
“Let’s say a company decides ‘I want to burn my assets, there’s no benefit to the company, I just want to do it because it’s fun,’” he continued. “You would need a unanimous shareholder vote for that.”
Tesla’s fan base is fractured into two warring camps
The board could argue that restoring Musk’s compensation package would ensure the totemic entrepreneur does not leave the CEO position. Yet this has become a tougher sell, not just because Tesla’s investor base has split into pro-Musk and anti-Musk factions.
This post was enough to convince him to threaten me with assault. Wild. Is this also allowed on X? I don’t even know anymore with Elon’s wild west approach.
Yes, spitting on someone in most places is considered “simple assault” or “battery.” https://t.co/WXaSrxZRLO pic.twitter.com/7e3JLXIxvX
— Fred Lambert (@FredericLambert) April 17, 2024
One problem is that Musk divides his time between running Tesla and his myriad other business interests. These now include the role of Chief Technology Officer at social media company
With Musk’s full attention not focused on Tesla, the wheels have begun to come off on the automaker’s growth story. Vehicle sales are declining year over year for the first time since the outbreak of the COVID pandemic, and comparable earnings are expected to fall 40% when Tesla reports on Tuesday. The company also said goodbye to more than a tenth of its staff this week, including veteran executive Drew Baglino.
Pointing to the stock price which has slumped to 52-week lows this week, Bloomberg columnist Matt Levine said it was “a bit of a strange request” to grant Musk billions in retrospect for hitting market capitalization milestones in the past that no longer apply following a collapse. In the warehouse.
“As I wrote previously: ‘It’s possible that the rule of this case is that Tesla isn’t allowed to pay Musk $55.8 billion, no matter what its shareholders think, no matter how many of them vote to approve it in a fully informed vote.” ,” he argued Wednesday.