WOKE WEDNESDAY: Do we finally care about who’s on the board after they pay Elon Musk $55bn… and it’s rescinded?
Live from a Kimbal-scented ESG dude ranch, it’s yet another Woke Wednesday edition of Business Pants. Joined as always by Analyst-Hole Matt Moscardi! In today’s fake particle board called January 31, 2024!: the soap opera of Tesla CEO Elon Musk and how it proves definitively that we are right!
Our show today is being sponsored by Free Float Analytics, the only ESG data platform to measure real board influence and diversity power gaps
DAMION1
Judge voids Elon Musk’s $56 billion Tesla compensation package
Delaware Chancery Court Chancellor Kathaleen McCormick invalidated Tesla CEO Elon Musk's $56 billion compensation package, ruling that he "failed" to prove that it was fair.
In 2018, Musk agreed to be Tesla's CEO or executive chairman and chief product officer for a decade.
Tesla agreed to pay him 20.3 million stock options in 12 tranches that would vest as the company met more than a dozen milestones. They were estimated to be worth about $55 billion at the time.
That same year, shareholder Richard Tornetta filed a lawsuit against Musk and Tesla to rescind the pay package — arguing that it was excessive, and that the company's board breached its fiduciary duty in approving it.
Musk "enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan," Delaware Chancery Court Chancellor Kathaleen McCormick said in her ruling.
"The Compensation Committee and Musk were not on different sides. They did not acknowledge the existence of a conflict. It was a cooperative and collaborative process."
“Musk dictated the timing of the process, making last-minute changes to the timeline or altering substantive terms immediately prior to six out of the ten board or compensation committee meetings during which the plan was discussed.”
From McCormick’s 200-page ruling:
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
“Delaware courts have been presented with this question thrice before, when more adroit judges found ways to avoid definitively resolving it. This decision dares to ‘boldly go where no man has gone before,’ or at least where no Delaware court has tread.
“Colonizing Mars is an expensive endeavor. Musk believes he has a moral obligation to direct his wealth toward that goal, and Musk views his compensation from Tesla as a means of bankrolling that mission. Musk sees working at Tesla as worthy of his time only if that work generates ‘additional economic resources . . . that could . . . be applied to making life multi-planetary.’”
“Tesla and Musk are intertwined, almost in a Mary Shelley (‘You are my creator . . .’) sort of way. As Kimbal explained, ‘Tesla created Elon Musk’s persona and Elon Musk’s persona is attached to Tesla.’ Musk is Tesla’s public face, and he describes Tesla as ‘my company.’
“In addition to his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan. At least as to this transaction, Musk controlled Tesla.”
“ Put simply, neither the Compensation Committee nor the Board acted in the best interests of the Company when negotiating Musk’s compensation plan. In fact, there is barely any evidence of negotiations at all.”
Musk on X:
"Never incorporate your company in the state of Delaware" and “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters”
Grok: “Maybe it’ll even encourage companies to invest more in their employees and products rather than just lining the pockets of their top executives.”
Should Tesla change its state of incorporation to Texas, home of its physical headquarters?
“Every company should change their state of incorporation to a red state.”
“i think moving to a state that likes business instead of a state that actively hates capitalism is probably good”
“81% of all shareholders voted to #payElon by comp package ! 73% of non insider share holders voted to #payElon, including me !”
“Also, when we reincorporate in a different state, you can introduce the dual-class structure. Win-Win-Win!”
MATT 1
FIRST, CUE WOKE JUDGES HYSTERIA:
7 WOMEN!! 63% FEMALE JUDGES! ONE WHOLE PERSON OF COLOR!! WHERE ARE ALL THE MEN??? (Texas Supreme Court: 3 women, one of which is a twofer, 6 white guys)
THEN, READ THE DECISION AND TAKE A GOOD LONG LOOK AT HOW YOU EVALUATE YOUR COMPANIES INVESTORS:
WHY THE BOARD MATTERS: Quote:Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the compensation committee chair, Ira Ehrenpreis. The other compensation committee member placed on the working group, Antonio Gracias, had business relationships with Musk dating back over 20 years, as well as the sort of personal relationship that had him vacationing with Musk’s family on a regular basis. The working group included management members who were beholden to Musk, such as General Counsel Todd Maron who was Musk’s former divorce attorney and whose admiration for Musk moved him to tears during his deposition. In fact, Maron was a primary go between Musk and the committee, and it is unclear on whose side Maron viewed himself. Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron. Given the collection of people tasked with negotiating on Tesla’s behalf, it is unsurprising that there was no meaningful negotiation over any of the terms of the plan.
There is a whole section on every board member that was relevant - and its damning how fucking indifferent investors were to these people
Ehrenpreis went to KIMBAL’s wedding and investing in his restaurants on top of what he says was “a real benefit in fundraising” for his funds by being on Tesla’s board and/or Musk’s friend
Buss owed 44% of his total net worth to Musk despite having no prior relationship
Denholm’s net worth is almost entirely Musk
Gracias made all his money on Musk companies, was a vendor for Tesla, and they holiday together every year
Murdoch went on family vacations together (with Gracias), and Murdoch went to Kimbal’s wedding
The black woman was added by Gracias and made almost nothing from Tesla!
WHY YOUR CURRENT GOVERNANCE DATA POINTS ARE POINTLESS: Quote: The defendants also point to the duration of the process (nine months) and the number of board and committee meetings (ten) as evidence that the process was thorough and extensive. The defendants’ statistics, however, elide the lack of substantive work. Time spent only matters when well spent
WHY FAKE PUBLIC COMPANIES FUCK YOU EVERY TIME: The defendants maintained that the plan is an exceptional deal when compared to private equity
compensation plans, but they did not explain why anyone would compare a public company’s compensation plan with a private-equity compensation plan.
WHY YOU SHOULD REMEMBER NONE OF THIS WAS EVEN MUSK’S IDEA: In 2006, Tesla announced that it would begin to sell the Signature 100 Roadster for approximately $100,000.22 By August 2007, Tesla had pre-sold 570 Roadsters,23 which became available in 2008, the same year that Musk became Tesla’s CEO.
BUT ALSO, SOME INVESTORS WERE CONSULTED… AND LIKED IT… Baillie Gifford, Fidelity, T Rowe, PrimeCap, Jennison, “Baron” were consulted, though not told Tesla had already determined that some of the milestones were “70%” probable and amounted to nearly $3bn in compensation… before even granted
ALSO, SIDE NOTE: Musk told the board and planned on using the funds he received to fund colonizing Mars… something he was doing NOT THROUGH TESLA… so they just gave him shareholder capital so he could have fun saving humanity
WHAT COULD HAVE BEEN AVOIDED IF YOU JUST VOTED LIKE YOU CARED: The record comprises 1,704 trial exhibits, live testimony from nine fact and four expert witnesses, video testimony from three fact witnesses, deposition testimony from 23 fact and five expert witnesses, and 255 stipulations of fact
