By JESSICA OKONKWO on JUNE 12, 2024
Chief Executive Elon Musk’s record $44.9 billion compensation package, which was overturned earlier this year by a Delaware judge, has been reinstated by a vote of Tesla shareholders.
The Company stated that they voted in favor of Mr. Musk’s compensation plan, which was first approved by the board and stockholders six years ago, although the vote totals were not immediately disclosed at Tesla’s annual stockholders’ meeting on Thursday.
However, the favorable vote does not guarantee that Mr. Musk will receive the full stock payment in the near future.
For months to come, the package will probably be tied up in the Delaware Chancery Court and the Supreme Court while Tesla attempts to reverse the denial.
Tesla last valued the package at $44.9 billion in an April regulatory filing.The value of the asset, which was originally valued at $56 billion, has decreased in lockstep with the 40% loss in Tesla’s stock price over the past year.
When the Tesla board adopted the package in 2018, Chancellor Kathaleen St Jude McCormick found in a shareholder case that the board was effectively under Mr. Musk’s control and that the board had not provided shareholders with adequate notice before the package was approved in 2018.
At Thursday’s annual meeting, Tesla urged shareholders to reapprove the package, despite having stated that it would file an appeal.
At the conference in Austin, Texas on Thursday, Mr. Musk announced that a second issue to relocate the company’s legal headquarters to Texas in order to escape the Delaware courts was also approved.
“It’s incredible,” a jubilant Mr Musk told the crowd gathered at Tesla’s headquarters and large factory in Austin.
“I think we’re not just opening a new chapter for Tesla, we’re starting a new book.”
Legal experts predict that Delaware will still settle the matter of Mr. Musk’s compensation, mostly because Mr. Musk’s attorneys have promised Ms. McCormick that they won’t attempt to transfer the case to Texas.
However, they disagree on whether Tesla will find it easier to get the pay package authorized in light of the recent approval.
The founder of the University of Delaware’s Corporate Governance Center and retired professor Charles Elson stated he does not believe the vote will have an impact on Ms. McCormick’s decision, which was made in accordance with the law.
Mr. Elson stated that Ms. McCormick’s decision effectively turned the 2018 bonus package into a gift for Mr. Musk, and that would require the consent of every shareholder, which is an impractical requirement.
The vote, he said, is interesting from a public perception standpoint, but “in my view it does not affect the ruling”.
According to John Lawrence, an attorney at Baker Botts in Dallas who represents companies in shareholder lawsuits, the vote does not automatically grant Mr. Musk the stock options or put an end to the legal issue.
He says it gives Tesla a strong argument to get the ruling overturned. He expects that Tesla and Mr. Musk will counter that shareholders were completely informed prior to the most recent votes, and that Ms. McCormick need to change her mind.
The Delaware court still has the option to conclude that this has no bearing on her earlier decision and does not necessitate that she issue any new rulings in the future.
But the plaintiff in the lawsuit will argue that the vote has no impact and is not legally binding, Mr Lawrence said.
The vote, he said, was done under Delaware law and should be considered by the judge.
“This shareholder vote is a strong signal that you now have an absolutely well informed body of shareholders,” he said.
“The judge in Delaware still could decide that this doesn’t change a thing about her prior ruling and doesn’t require her to make any different ruling going forward. But I think it definitely gives Tesla and Musk strong ammunition to try to get her to revisit this.”
If the ruling stands, then Mr Musk is likely to appeal to the Delaware Supreme Court, Mr Lawrence said.
Read the full article here
