Tesla’s Elon Musk faces lawsuit over $55 billion in pay, ‘biggest in history’
The multitasking CEO copes one more try before the same Delaware judge who forced him to honor his contract with Twitter’s board of directors to buy the social media company. This time, however, it’s about something much more personal: his own compensation.
From November 14, Elon Musk along with current and former directors must appear before Kathaleen McCormick, of the Court of the State Chancellery, to defend a colossal compensation awarded in 2018 which entitled him to up to 55 $.8 billion in stock options.
Unlike the Twitter case, it is expected that this will likely not result in an early settlement.
Plaintiff Richard Tornetta argues in a 96-page legal brief that the board of directors failed in its fiduciary duty to minority investors by greenlighting “the largest compensation grant in the history of humanity” – even though the grant was put to a shareholder vote and approved.
At the heart is the question of whether Elon Musk can be considered a majority shareholder on both sides of the deal – as chairman of the board holding a 22% stake at the time, as well as the beneficiary of the package. If it were, the transaction would be considered a conflicting transaction subject to different governance rules.
“Musk’s problem is that he has close ties to a lot of directors,” said Ann Lipton, a law professor at Tulane University. “If you are deemed to be a controller, conflicting transactions cannot be resolved by a single shareholder vote. You also need a disinterested and independent board committee, and a more formalized process, which was not followed here.
Toretta argues that Musk also had little incentive because the defined milestone payments also aligned with goals already embedded in the company’s projected business plan.
While a decision is based on decisions that took place four years ago, recent events on Twitter could play a role. Musk has drafted in a team of 50 Tesla employees, including top executives like Ashok Elluswamy, as personal aides in restructuring Twitter operations.
According CNBCworkers at the electric car maker are pressured to participate in Musk’s other companies’ projects without additional pay because it’s seen as good for their careers or because the work is seen as helping a related transaction or project.
Although indicating a complete lack of trust in Twitter staffit may also establish a pattern of behavior in which Musk can simply divert resources from Tesla at the discretion and no one on Tesla’s “lying” board, as Tornetta calls it, will oppose it.
“That will help,” Lipton said. “It shows how conflicted he is.”
Still, the Tulane professor said she liked Musk’s chances on the deal much better than when Twitter sued him, demanding he honor his contractual promise to buy the company for $44 billion. .
The Tornetta trial took place after the court’s vice-chancellor, Joseph Slightsin September 2019, spoke out against Tesla’s attempt to dismiss the case and ordered it to proceed.
He cited the sheer size of the salary package as well as the risk that minority investors were hired by a docile board that feared retaliation from Musk, a starving ‘800-pound gorilla’, if he didn’t get his way. what he wanted.
“This has the potential to be a very big case from an executive compensation perspective,” said the University of Pennsylvania law professor. Jill Fisch told Bloomberg.
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