Elon Musk’s $50 Billion Trial Concludes Today


Washington DC
Cnn

Tesla’s shareholder lawsuit reviewing CEO Elon Musk’s unprecedented compensation package concludes this afternoon. While it’s possible the judge could issue a ruling from the bench, it could be weeks or months before a ruling arrives.

Tesla awarded Musk a salary package in 2018 that helped make him the richest person on Earth. The net value of the compensation package is $50.9 billion today, after Tesla’s valuation increased more than 1,000% at its peak since shareholders approved the package.

Plaintiff Richard Tornetta originally filed the lawsuit in June 2018, alleging that Musk leveraged his control over Tesla and the board of directors to obtain the fee to “finance his personal ambition to colonize Mars.” The Delaware Court of Chancery heard arguments this week in Wilmington.

Tornetta and his lawyers say Musk and the board have failed to meet their financial responsibilities to shareholders. Tesla says its board has legal responsibility for shareholder money in addition to overseeing management, which includes Musk.

Tornetta argued that the huge salary package wasn’t necessary to incentivize Musk since he already owned the largest share of Tesla.

The testimony was heard this week by a who’s-who of Tesla insiders including Musk, board chairman Robyn Denholm, former chief financial officer Deepak Ahuja, former board member Antonio Gracias and board members Ira Ehrenpreis and James Murdoch.

The trial resumed on Friday morning with the depositions of the experts.

Kevin Murphy, a business school professor at the University of Southern California, testified on behalf of Tesla and the other defendants that the salary package was reasonable. He also said that Tesla’s board members were considered independent by NASDAQ standards. The independence of directors is a central theme of the case.

Tornetta’s lawyers highlighted the friendships between Musk and several of his board members who set up the deal. Some have vacationed together to places like magician David Copperfield’s private island in the Bahamas, where Musk summoned his brother Kimbal and Gracias in 2017 to determine whether James Murdoch should join the Tesla board, according to Kimbal’s deposition. which was filed in court this week. Murdoch, who has described himself as a friend of Elon Musk since 2006, joined them on Copperfield Island for part of the trip, and joined the council shortly thereafter.

Several corporate governance experts told CNN Business that it’s clear Tesla’s board is not independent of Musk.

“It’s safe to say that Musk has a lot of power — and probably too much power — on the Tesla board,” George S. Georgiev, a professor studying corporate governance at Emory University’s law school, told CNN Business. “Tesla’s board has been extremely lenient despite Musk’s many transgressions over the years, including his skirmishes with the SEC.”

Denholm, chairman of the Tesla board, revealed after lengthy questioning in his testimony that he was unaware of the details of how Musk handled an SEC settlement that required him not to tweet about certain topics, such as Tesla’s financial condition. and new lines of business, unless obtained pre-approval from a “securities attorney.”

Musk explained in his deposition that he sends a few tweets for approval and posts them if he hasn’t heard back in an unspecified amount of time. This provision leaves open the possibility that Musk’s tweets will be published without the necessary review.

Denholm first joined Tesla’s board in 2014 and became its chairman in 2018 when Musk agreed to step down from that position following the SEC allegations. He said in his testimony that he interviewed Musk before joining the board of directors.

Georgiev said there isn’t much precedent for cases like this because they are dismissed or resolved.

Georgiev also said this makes an appeal to the Delaware Supreme Court more likely, so the case could get longer. He pointed to a compensation case for Michael Ovitz, a short-lived Disney CEO, that dragged on for about a decade.

Tesla board members who testified typically spoke of the huge compensation package needed to keep Musk committed to Tesla.

“He has 100 business ideas in mind. I promise you he only made a very few,” Gracias testified. “And we wanted him to be focused. We needed him to be focused.”

Murphy, Tesla’s expert witness, also dismissed on Friday the notion that Tesla shareholders are subsidizing Musk’s mission to Mars.

“I don’t think that’s any more true than USC is subsidizing my vacation. They pay me a reasonable salary for reasonable services,” Murphy said.

He said he doesn’t think shareholders have a particular interest 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 has built a tunnel and transit firm, the Boring Company, as well as Neuralink, which is working to put computer chips into brains. Musk recently acquired Twitter for $44 billion and described himself as its “Chief Twit.”

Musk’s brother Kimbal took a slightly different view of his deposition. At the time of the 2018 compensation package, Kimbal said it was “very unlikely” Elon would step away from his role as CEO of Tesla.

“He is accountable to the company’s shareholders. That’s not how Elon operates,” Kimbal Musk said.

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