Elon Musk faced a significant setback as the Delaware Court of Chancery, often likened to a wealth-draining giant anti-ATM, voided a $55 billion compensation package awarded to him by Tesla Inc. in 2018. Chancellor Kathaleen St. J. McCormick, who previously presided over Musk’s case with Twitter Inc. in 2022, nullified the compensation, prompting Musk to caution entrepreneurs against incorporating their companies in Delaware.
Musk’s recent tweet about avoiding Delaware suggested a premonition of this setback. A few weeks prior, he had hinted at diverting his AI-related ideas elsewhere unless granted a substantial Tesla stock allocation. The pending ruling seemed to make him uneasy.
The ruling, expected to be appealed, revokes Tesla stock options valued at approximately $51 billion. Musk still holds a 12.9% direct stake in Tesla, worth $79 billion, with a significant portion pledged as collateral for personal loans. Despite his holdings in SpaceX and other ventures, the ruling raises concerns about the impact on Tesla’s stock.
This incident once again highlights the governance paradox at Tesla. The judge’s determination of the board’s conflict in awarding Musk the compensation package doesn’t surprise long-time observers. The board, including Musk’s brother, has been criticized for overseeing questionable corporate decisions, such as the SolarCity Corp. acquisition and the ill-fated take-private deal.
The board, some members of which date back to 2018, now faces the task of devising a new compensation package to retain Musk. Musk’s desire for more Tesla stock follows his significant sale of Tesla shares while acquiring a social media platform, diverting attention from his role as an EV tycoon. The timing of these financial moves, along with Tesla’s recent abandonment of its growth target and focus on the Cybertruck, contributes to a moment of corporate vulnerability.
Musk’s pivotal role in Tesla’s mystique suggests that such absurdities will likely be accommodated. His centrality as both the chief asset and chief risk underscores the board’s failure and the challenges inherent in Tesla’s leadership dynamics.
