As of Friday afternoon, the trial in the Tesla shareholder lawsuit scrutinizing CEO Elon Musk’s exceptional remuneration package was concluded. There was no ruling from the bench by chancellor Kathaleen McCormick, and we may have to wait weeks or months for a decision. “We have a lot of work ahead of us,” McCormick told both side’s attorneys as the trial concluded. “I won’t insult you with the typical talk I give at this point which is settlement is still achievable.”
Musk received a compensation bonus from Tesla in 2018 that contributed to his becoming the world’s richest man. Since shareholders approved the deal, Tesla’s valuation has increased by more than a factor of 1,000, bringing the total value of the pay package to $50.9 billion today.
The case was initially brought in June 2018 by Richard Tornetta, who claimed that Musk used his position as CEO and influence with the board of directors to improperly enrich himself in order to “finance his personal ambition to populate Mars.” During this week in Wilmington, the Delaware Court of Chancery has been hearing oral arguments.
Tornetta and his attorneys claim that Musk and the board have been negligent in their duties to the company’s shareholders. According to Tesla’s board of directors, it is their duty to protect shareholder funds in addition to monitoring Musk and the rest of the management. Tornetta contended that Musk didn’t need the massive compensation package because he already owned the majority of Tesla’s shares.
Musk, board chair Robyn Denholm, former CFO Deepak Ahuja, former board member Antonio Gracias, and current and former board members Ira Ehrenpreis and James Murdoch all testified this week. Expert witnesses testified during the trial on Friday.
Tesla and the other defendants presented testimony from Kevin Murphy, a professor of business at the University of Southern California, who testified that the compensation package was fair. He added that according to NASDAQ criteria, Tesla’s board members qualify as independent. A key issue in the lawsuit involves the board of directors autonomy.
Attorneys for Tornetta have pointed out that many of Musk’s board members were also friends with him when the agreement was negotiated. According to Kimbal’s deposition, which was played in court this week, Musk called on his brother and Gracias while they were on vacation together in 2017 to discuss whether or not James Murdoch should join Tesla’s board. Murdoch, who claimed to be an Elon Musk buddy since 2006, traveled to Copperfield’s Island with the group and eventually joined the board.
Many experts in corporate governance have informed CNN Business that it is obvious that the Tesla board of directors is not independent of Musk. Professor of corporate governance at Emory University’s law school, George S. Georgiev, told CNN Business, “It’s safe to say that Musk has a lot of power – and probably too much power – over the Tesla board,” “The Tesla board has been extremely indulgent despite Musk’s many transgressions over the years, including his skirmishes with the SEC.”
The chair of Tesla’s board, Robyn Denholm, testified under oath that she did not know the specifics of Musk’s compliance with an SEC settlement that prohibits him from tweeting about certain topics, including Tesla’s financial condition and new business lines, without first obtaining pre-approval from an “experienced securities lawyer.
During his deposition, Musk revealed that he sends some tweets for clearance before publishing them if he doesn’t receive a response within a particular amount of time. With this setup in place, Musk’s tweets may be published without being vetted first.
After Musk agreed to resign as chairman of Tesla’s board in 2018 due to SEC allegations, Denholm was appointed to the position. She testified that she had spoken with Musk for an interview before to joining the board. According to Georgiev, such cases tend to be rejected or settled quickly, therefore there is little to no precedent.
My commitment to free speech extends even to not banning the account following my plane, even though that is a direct personal safety risk
— Elon Musk (@elonmusk) November 7, 2022
What Did Georgiev Said?
Moreover, Georgiev argued that this increases the likelihood of an appeal to the Supreme Court of Delaware, which might further prolong the proceedings. He used as an example the long-running dispute over former Disney CEO Michael Ovitz’s remuneration. The majority of Musk’s compensation package, according to the Tesla board members who testified, was justified by the need to keep him actively involved in the company.
“He’s got 100 company ideas in his mind. I promise you he’s only done very few of them,” Gracias testified. “And we wanted him focused. We needed him focused.” Expert witness Murphy for Tesla fought back on Friday against the claim that Tesla shareholders are funding Musk’s Mars project. Nothing could be further from the truth, and I highly doubt that USC is paying for my vacation. I do decent work, and they pay me decent money,” Murphy remarked.
As far as he’s concerned, stockholders couldn’t care less how Musk spends his money, he claimed. He added that the money could be used to motivate Mr. Musk, which would be excellent for Tesla shareholders.
In addition to running SpaceX, Musk founded the Boring Company, a tunneling, and transportation business, and Neuralink, a company that is developing technology to implant computer chips in the brain. Musk recently spent $44 billion to acquire Twitter, and he now calls himself the company’s “Chief Twit.”
Kimbal Musk, Elon’s older brother, offered another viewpoint in his deposition. Kimbal stated that it was “extremely improbable” that Elon would resign as CEO of Tesla in the context of the 2018 compensation package. “He’s responsible to the shareholders to the company. That’s just not how Elon operates,” Kimbal Musk said.
The trial in the Tesla shareholder lawsuit that analyzed CEO Elon Musk’s extravagant compensation package came to a close on Friday afternoon. Chancellor Kathaleen McCormick did not issue a ruling from the bench, so we may have to wait several weeks or months for a decision.
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