ohThe rational view on the Elon Musk compensation issue is that Tesla shareholders should stick to their guns and re-approve his astronomical $56 billion compensation, sending a message to the interventionist Delaware judge who struck down the 2018 plan that they are more than capable of making their own decisions.
Broadly speaking, that’s the stance taken by Baillie Gifford, an early and large investor in electric-car companies. “When we agreed the compensation package with Tesla in 2018, we were doing it because we had set ambitious targets that, if met, would deliver huge returns for shareholders,” says Tom Slater, manager of FTSE 100 Scottish Mortgage Investment Trust. He told the Financial Times “Since we agreed to this, we believe we should pay it,” he said last month. Certainly, this statement has the virtue of consistency: we know what we voted for, and a deal is a deal.
Similarly, no one is likely to complain that Norway’s sovereign wealth fund will vote in opposition on Thursday, just as it did in 2018. The fund opposed the plan then, and sees no reason to change its view just because Tesla’s shares have since soared, triggering a record payout to Musk before a Delaware court stepped in.
So the reapproval vote would produce a similar result to the original 73% majority. The shareholder register has changed over the years, but not by much. If anything, retail investors, who make up almost 40% of the stock, seem to have become even more enamoured with Musk lately. And if the majority is indeed secured, that would be the end of the matter and we wouldn’t have to go to court again.
But before this furor fades from the headlines, there’s the small matter of what Delaware Judge Katherine McCormick actually said. Her 200-page ruling January. Read in its entirety, the impression one gets is that Tesla’s 2018 board is a collection of casualties too subservient to its boss to even implement a semi-robust process for setting his incentives.
No one disputes that Tesla’s stock price would have needed to undergo a minor miracle to realize Musk’s full prize money, which had to top $650 billion by 2028, compared with a valuation of around $50 billion (it actually took just three years to achieve that goal). Rather, the problem was the people Tesla appointed to negotiate with Musk and determine a fair prize.
As the judge noted, lead director Ira Ellen Price had a 15-year business relationship with Musk. Another member of the working group, Antonio Gracias, vacationed with Musk’s family. A third, Musk’s former divorce lawyer and company general counsel Todd Maron, “broke down in tears in praise of Musk during testimony.” McCormick concluded that the adjudication process was “deeply flawed” and that the terms were “not entirely fair” to all shareholders. In short, Musk said what he wanted and received minimal backlash.
In theory, Tesla’s board had some powerful cards to play. At the time, Musk owned just over a fifth of Tesla’s stock (before he sold some to fund his Twitter antics), so he couldn’t have lacked the appetite to pursue a goal of “transformative” growth. Even without a plan, every $50 billion increase in Tesla’s market cap was worth $10 billion to Musk. This negotiating point appears to have been ignored.
The company has not adequately addressed the judge’s criticisms of the process. Chairman Robin Denholm, who took over in late 2018, said: He said the board “supports this package” and feels vindicated by what has happened.As a precaution, the company adopted Musk’s plan to move Tesla’s headquarters to Texas.
If Musk asked for a larger stake to keep him focused on Tesla and not on his personal company, would the supposedly independent directors go along with it? Probably.
So even if we accept that contracts, even the obvious excesses, should be honored, the lack of soul-searching in Tesla’s boardroom is astonishing. The lesson to be learned from this is that this is a public company, and the job involves more than being a cheerleader for Elon Musk’s fan club.
Source: www.theguardian.com
