The compensation package, which would have been the largest in corporate history, faced its first defeat in January when Judge McCormick initially invalidated it. Tesla’s legal team attempted to address the court’s concerns through a new shareholder vote, but this strategy proved unsuccessful.
In her ruling, Judge McCormick pointed to fundamental issues with how the pay package was structured and approved. She determined that Musk held too much influence over Tesla’s board of directors, leading to terms that weren’t “entirely fair” to the company and its shareholders.
The court found that Tesla’s board “capitulated to Musk’s terms” rather than negotiating an appropriate compensation package. McCormick noted that while the board could have chosen a reasonable amount to pay Musk, they instead accepted his demands without proper consideration of alternatives.
Adding to Tesla’s challenges, the court ordered the company to pay $345 million in attorney fees to the plaintiff’s legal team. This payment can be made either in cash or Tesla shares, creating an additional financial burden for the company.
Tesla’s response to the ruling was direct and critical. The company stated that if the decision stands, it would mean that “judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.” This statement reflects Tesla’s position that shareholder approval should be the primary factor in determining executive compensation.
The company has announced its intention to appeal the ruling to the Delaware Supreme Court. This move sets the stage for another legal battle that could take months or even years to resolve, leaving uncertainty around Musk’s compensation structure at Tesla.
A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth.
The court’s decision is wrong, and we’re going to appeal.
This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware…
While dealing with this setback, Musk has been involved in other legal matters. He recently filed a lawsuit against OpenAI and Microsoft, claiming anti-competitive practices in the artificial intelligence sector. The suit alleges that OpenAI’s shift to a for-profit model, supported by Microsoft’s $13 billion investment, has created unfair market conditions.
The Tesla CEO did receive some positive legal news recently. A U.S. District Court judge ruled in his favor regarding an SEC case about the X (formerly Twitter) acquisition. The SEC had sought sanctions against Musk for missing a meeting, but the court denied this request after learning Musk had already reimbursed related costs.
The ruling raises questions about corporate governance practices at large tech companies. Judge McCormick’s decision emphasized the importance of maintaining independence between company boards and powerful CEOs, particularly when deciding matters of executive compensation.
Tesla’s board structure came under particular scrutiny during the case. Evidence presented showed close personal and professional ties between Musk and board members, which the court found problematic when evaluating the fairness of the pay package negotiations.
The $56 billion package would have made Musk eligible for a series of stock grants based on Tesla achieving certain market value and operational goals. These targets were designed to reward Musk for Tesla’s growth and success under his leadership.
The re-ratification attempt by Tesla shareholders showed strong support for the package, with most voting in favor. However, the court determined that shareholder approval alone wasn’t enough to overcome the fundamental fairness issues identified in the original ruling.
For now, the compensation package remains invalid, though Tesla continues to argue that shareholders should have the final say in such matters. The company maintains that the board and shareholders acted within their rights in approving the package.
The most recent development in this ongoing situation is Tesla’s commitment to appeal, while also facing the immediate obligation to pay the $345 million in legal fees awarded by the court.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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By Nermeen Nabil Khear