Tesla seems to have persuaded a phalanx of minor and big funders to approve Elon Musk’s $56 billion compensation plan. The more difficult aspect is now convincing a Delaware court who is already dubious to acknowledge it.
Musk said on Wednesday night that the compensation package and the board-sponsored relocation of Tesla’s legal headquarters from Delaware to Texas were approved by the shareholders. On Thursday, at the company’s annual meeting, the official voting results are due.
Since Musk is the company’s main innovator and force behind many of its advancements, small shareholders in particular have expressed strong support for the compensation plan. However, recent declines in sales and the stock price have increased worries, which led to a coordinated “no” vote.
Prior to Tesla granting Musk shares, there is expected to be several months of legal proceedings concerning the pay ratification vote, Musk’s attempts to mobilize shareholders in favor of his remuneration, and the appeal of the initial decision, which was made four months after a Delaware judge annulled the compensation package.
It is unlikely that Musk will win his case in court, and it won’t happen soon.
Musk inappropriately dominated the 2018 board process to negotiate the pay package, according to Judge Kathaleen McCormick of Delaware’s Court of Chancery, who revoked it in January. She also decided that before investors voted for Tesla, they were not properly informed.
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“Chancellor McCormick’s decision would not automatically be overturned in response to a shareholder vote. This is new territory for us,” stated Baker Botts corporate counsel Samantha Crispin.
According to Tesla, the shareholder vote on Thursday effectively went back in time and fixed the 2018 vote by giving investors access to a tonne of material, including McCormick’s 200-page decision.
Tesla said that it also resolved the issue of Musk controlling the compensation package negotiation process. After reviewing the 2018 compensation package and determining it was in the best interests of shareholders, it eventually established a special committee that was eventually limited to independent board member Kathleen Wilson-Thompson.
However, Tesla also stated in market filings that the wage dispute might not be resolved even with a favorable ratification. The main purpose of ratification is to rectify issues like technical errors in business documents.
Frustrated by the scale of the award, a number of significant shareholders as well as a few smaller ones voted against the compensation package, slowing down operations at Tesla and adding to Musk’s increasing list of side projects, which now includes companies involved in rocketry, artificial intelligence, social media, neuroscience, and tunnel construction.
A lawsuit challenging the vote has already been filed by at least one shareholder.
Tesla investor Donald Ball filed a lawsuit in Delaware’s Court of Chancery, alleging that Musk had used “strong-arm, coercive tactics” to have his compensation package approved. It referenced tweets from Elon Musk posted on his social media site, X, in which he expressed discomfort about Tesla becoming a leader in AI unless he owned 25% of the company, which is nearly twice as much as he already does.
However, Musk and Tesla would probably counter that Musk has the right to announce his intention to leave the firm.
Professor Zohar Goshen of Columbia Law School stated that he believed the Delaware court’s ruling should be overturned following a yes vote, but he conceded that the circumstances were too unique to make a firm judgment.
The amount of buzz around this issue makes it difficult to predict the court’s ruling. However, Goshen stated, “I think Tesla should be successful.