The trial of Tesla shareholders’ lawsuit examining CEO Elon Musk’s unprecedented compensation package concluded on Friday afternoon. Chancellor Kathaleen McCormick has not issued a decision from the bench, and it could take weeks to months before a decision is made.
“We have a lot of work ahead of us,” McCormick told attorneys for both sides at the end of the trial. “I won’t insult you with the typical speech I give at this point, which is still workable.”
Tesla gave Musk a salary package in 2018 that helped make him the richest person on the planet. The net worth of the compensation package is $50.9 billion today, after Tesla’s valuation soared more than 1,000% to its peak since shareholders approved the program.
Plaintiff Richard Tornetta originally filed the lawsuit in June 2018, alleging Musk exploited his control over Tesla and the board to obtain compensation to “fund his personal ambition to colonize Mars.” The Delaware Court of Chancery heard arguments this week in Wilmington.
Tornetta and his attorneys allege that Musk and the board failed to meet their financial responsibilities to shareholders. Tesla says its board is legally responsible for shareholder money in addition to overseeing management, which includes Musk.
Tornetta argued that the huge compensation was not necessary to entice Musk because he already owned Tesla’s largest stake.
Testimony was heard this week from a who’s who of Tesla insiders, including Musk, board chair Robyn Denholm, former chief financial officer Deepak Ahuja, former board member Antonio Gracias and board members Ira Ehrenpreis and James Murdoch.
Friday’s trial included testimony from expert witnesses.
Kevin Murphy, a professor at the University of Southern California business school, testified on behalf of Tesla and the other defendants that the salary package was reasonable. He also said Tesla’s board members are considered independent by NASDAQ standards. The independence of directors is a central theme of the case.
Tornetta’s attorneys pointed to the friendships between Musk and several of his board members who created the deal. Some have vacationed together at places like magician David Copperfield’s private island in the Bahamas, where Musk summoned his brother Kimbal and Gracias in 2017 to discuss whether James Murdoch should join Tesla’s board, according to the deposition. of Kimbal which was presented in court this week. Murdoch, who describes himself as a friend of Elon Musk since 2006, joined them on Copperfield Island for part of the trip, and joined the board soon after.
Several corporate governance experts told CNN Business that it’s clear Tesla’s board lacks independence from Musk.
“It’s safe to say that Musk has a lot of power — and probably too much power — on Tesla’s board,” George S. Georgiev, a professor who studies corporate governance at the faculty, told CNN Business. of Law from Emory University. “Tesla’s board has been extremely lenient despite Musk’s many transgressions over the years, including his skirmishes with the SEC.”
Denholm, chairwoman of Tesla’s board of directors, revealed after numerous questions in her testimony that she was unaware of the details of how Musk is handling an SEC settlement that required him not to tweet on certain topics, such as Tesla’s financial condition and new business areas, unless he obtained prior approval from an “experienced securities attorney.”
Musk explained in his deposition that he sends certain tweets for approval and publishes them if he has not received a response within an indefinite period. This arrangement leaves open the possibility that Musk’s tweets will be published without the required review.
Denholm first joined Tesla’s board of directors in 2014 and became its chairman in 2018 when Musk agreed to step down from the role following accusations from the SEC. She said in her testimony that she interviewed Musk before joining the board.
Georgiev said there weren’t many precedents for cases like this because they were either dismissed or settled.
Georgiev also said it made an appeal to the Delaware Supreme Court more likely, so the case could expand. He pointed to a compensation case from Michael Ovitz, a briefly incumbent Disney CEO, that spanned about a decade.
Tesla board members who testified generally talked about the huge salary needed to keep Musk hired at Tesla.
“He has 100 business ideas in mind. I promise you he did very little,” Gracias said. “And we wanted him to be focused. We needed him focused.
Murphy, Tesla’s expert witness, also on Friday pushed back against the idea that Tesla shareholders were subsidizing Musk’s Mars mission.
“I don’t think it’s more true that USC subsidizes my vacation. They pay me a reasonable salary for reasonable services,” Murphy said.
He said he doesn’t think shareholders are particularly interested in how Musk spends his money.
“The fact that Mr. Musk is potentially incentivized by this money is a good thing for Tesla shareholders,” he said.
Musk is also the CEO of SpaceX and created a tunneling and transit company, the Boring Company, as well as Neuralink, which works to put computer chips in brains. Musk recently acquired Twitter for $44 billion and has described himself as its “Chief Twit.”
Musk’s brother, Kimbal, took a slightly different view of his testimony. At the time of the 2018 compensation package, Kimbal said it was “highly unlikely” that Elon would leave his role as CEO of Tesla.
“He is accountable to the shareholders of the company. That’s just not how Elon works,” Kimbal Musk said.
#Elon #Musks #billion #dollar #lawsuit #coming #CNN #Business