By Tom Hals
WILMINGTON, Delaware (Reuters) -Tesla has convinced an army of small investors and big funds to ratify Elon Musk's $56 billion pay package. Now comes the hardest part: persuading an already skeptical Delaware judge to recognize it.
The company said Thursday that shareholders had approved both Musk's pay package and a board-sponsored move of Tesla's legal domicile (NASDAQ to Texas from Delaware.
Musk is the driving force behind Tesla and responsible for many of its advancements, which has generated vocal support for the pay package, especially among small shareholders. Still, sales and stock prices have fallen recently, adding to concerns that produced a concerted “no” vote.
Before Tesla can hand over the shares to Musk, there will likely be months of litigation over the pay ratification vote, Musk's efforts to rally shareholders in support of his compensation and the appeal of the original ruling, four months after a Delaware judge will annul the salary package. .
A final legal outcome in favor of Musk is not certain and will not be quick.
Delaware Court of Chancery Judge Kathaleen McCormick (NYSE ) rescinded the pay package in January because she found that Musk improperly controlled the 2018 board process for negotiating it. She also ruled that Tesla did not fully inform investors before they voted in favor.
“This is not over,” said Brian Quinn, a professor at Boston College Law School. He said McCormick will require Tesla to prove that the vote was not coerced and that Musk did not influence the timing and strategy. “So when they show up (in Delaware court) saying everything is fine, they're going to have to come with receipts.”
As Tesla sees it, Thursday's shareholder vote essentially went back in time and corrected the 2018 shareholder vote by revealing huge amounts of information to investors, including McCormick's 200-page ruling.
Tesla argued that it also corrected the problem of Musk's dominance in the process to negotiate the salary package. He created a special committee ultimately composed only of independent board member Kathleen Wilson-Thompson, who reviewed the 2018 pay deal and decided it was in the best interest of shareholders.
But Tesla also acknowledged in regulatory filings that a favorable ratification might not resolve the pay dispute. Ratification is primarily considered a tool to resolve issues such as technical glitches in corporate documents.
Many major and some smaller shareholders voted against the pay package, frustrated by the size of the award, which slowed business at Tesla and Musk's growing list of distractions, including businesses in rocketry, artificial intelligence, social media, neuroscience and tunnel excavation.
At least one shareholder has already filed a legal appeal against the vote.
The lawsuit filed in Delaware Court of Chancery by Tesla investor Donald Ball (NYSE:) accused Musk of using “coercive and strong-arm tactics” to get his pay package approved. He cited messages from Musk on his social media platform
But Tesla and Musk will likely argue that Musk is allowed to express his desire to leave the company.
<img src="https://technicalterrence.com/wp-content/uploads/2024/06/Analysis-Elon-Musk-convinced-Tesla-investors-to-support-his-salary.jpg" title="© Reuters. FILE PHOTO: Elon Musk, CEO of SpaceX and Tesla and owner of twitter, gestures while attending the Viva technology conference dedicated to innovation and startups at the Porte de Versailles exhibition center in Paris, France, on the 16th June 2023. REUTERS/ Gonzalo Fuentes/File photo/” alt=”© Reuters. FILE PHOTO: Elon Musk, CEO of SpaceX and Tesla and owner of twitter, gestures while attending the Viva technology conference dedicated to innovation and startups at the Porte de Versailles exhibition center in Paris, France, on the 16th June 2023. REUTERS/ Gonzalo Fuentes/File photo/” rel=”external-image”/>
Columbia Law School professor Zohar Goshen said he thought the Delaware court's decision should be overturned after an affirmative vote, but acknowledged the situation was too unusual to say.
“It's hard to estimate how the court will rule because there is so much noise surrounding this decision. But my personal opinion is that Tesla should succeed,” Goshen said.
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