The ruling by the Delaware chancellor that essentially nullifies Elon Musk’s $55.8 billion pay package could have broader implications on the rest of corporate America. Late Tuesday, Delaware Chancery Court Chancellor Kathaleen McCormick voided the Tesla
TSLA,
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chief executive’s pay package, siding with a shareholder plaintiff who had sued the electric-vehicle maker over Musk’s compensation package from 2018, contending it was dictated by Musk and a “product of sham negotiations.” The suit alleged that Tesla’s directors breached their fiduciary duty in awarding Musk his comp plan.
In a strongly worded 201-page document, McCormick seemed to be aware she could be setting a precedent in Delaware, where a majority of U.S. corporations are incorporated, in terms of corporate governance. “Delaware courts have been presented with this question thrice before, when more adroit judges found ways to avoid definitively resolving it,” McCormick wrote. “This decision dares to ‘boldly go where no man has gone before,’ or at least where no Delaware court has tread.” The central issue in the case, forced by the plaintiff, she said, was whether Musk controls Tesla. And in this transaction, she wrote, he did. In addition to his 21.9% equity stake at the time, Musk, dubbed a “Superstar CEO,” “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.” Musk’s extensive ties and relationships with every board member on Tesla’s compensation committee at the time were divulged during the trial, including with Tesla’s former general counsel, Todd Maron. For example, Maron was also Musk’s former divorce attorney, and McCormick wrote that Maron’s “admiration for Musk moved him to tears during his deposition. In fact, Maron was a primary go-between for Musk and the committe …
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TSLA,
+0.35%
chief executive’s pay package, siding with a shareholder plaintiff who had sued the electric-vehicle maker over Musk’s compensation package from 2018, contending it was dictated by Musk and a “product of sham negotiations.” The suit alleged that Tesla’s directors breached their fiduciary duty in awarding Musk his comp plan.
In a strongly worded 201-page document, McCormick seemed to be aware she could be setting a precedent in Delaware, where a majority of U.S. corporations are incorporated, in terms of corporate governance. “Delaware courts have been presented with this question thrice before, when more adroit judges found ways to avoid definitively resolving it,” McCormick wrote. “This decision dares to ‘boldly go where no man has gone before,’ or at least where no Delaware court has tread.” The central issue in the case, forced by the plaintiff, she said, was whether Musk controls Tesla. And in this transaction, she wrote, he did. In addition to his 21.9% equity stake at the time, Musk, dubbed a “Superstar CEO,” “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.” Musk’s extensive ties and relationships with every board member on Tesla’s compensation committee at the time were divulged during the trial, including with Tesla’s former general counsel, Todd Maron. For example, Maron was also Musk’s former divorce attorney, and McCormick wrote that Maron’s “admiration for Musk moved him to tears during his deposition. In fact, Maron was a primary go-between for Musk and the committe …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]