By Ilene, adapted from Phil's Webinar (6/5/24) with AI
Elon Musk, the CEO and co-founder of Tesla, has been embroiled in a legal battle over his proposed $56 billion compensation package from Tesla. In addition, Musk has admitted to redirecting Tesla's supply of Nvidia chips to his personal AI company, which is not owned by Tesla. His excuse for this misappropriation is that Tesla wasn't ready to use the chips, so they would have just sat on the shelf. "That's like stealing the crown jewels and saying, 'well, the Queen only wears them once a year and I'm going to go out every weekend'," as Phil commented in last week's webinar.
Musk's ' unfathomable' compensation package, negotiated with board members beholden to him, would have awarded Musk $56 billion. The agreement did not require the company to generate a profit, meaning that Musk could receive an enormous payout even if Tesla continues to lose money. This misalignment of incentives prioritizes Musk's wealth over shareholders and risks decision-making that benefits Musk rather than the company. In a win for shareholders, judge Kathaleen McCormick found in favor of the plaintiff and invalidated the agreement.
Plaintiff Richard Tornetta is arguing in a 96-page legal brief that the board failed to perform its fiduciary duty to minority investors by green-lighting "the largest compensation grant in human history"-even though the grant was put to a shareholder vote and approved.
At its heart is the issue whether Elon Musk can be considered a controlling shareholder on both sides of the transaction-as chairman of the board owning a 22% stake at the time, as well as the beneficiary of the package. If he were, the deal would be considered a conflicted transaction subject to different governance rules. ~ CHRISTIAAN HETZNER, FORTUNE
Musk's actions and priorities as CEO have continually come under scrutiny. In addition to misappropriating Tesla's resources for his personal AI company, Musk has been criticized for his involvement in numerous other ventures, such as SpaceX, Hyperloop, and Twitter, now called "X," which detract from his ability to effectively lead Tesla. Many believe that Musk should focus on building a strong, profitable company rather than chasing personal wealth and vanity projects.
Moreover, Tesla's long-term viability as a car company is uncertain. The automotive industry is highly competitive, and Tesla's success has been largely dependent on government incentives and tax credits. As other manufacturers enter the electric vehicle market, Tesla may struggle to maintain its market share and profitability.
In conclusion, Elon Musk's proposed compensation package, misuse of company resources, and his leadership decisions raise serious concerns among Tesla's shareholders. As the company navigates an increasingly competitive landscape, it is crucial that its leadership prioritizes the long-term interests of its shareholders and the sustainability of the business, rather than its CEO's personal gain.
