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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Tesla shareholders cannot say that they were not warned. On Thursday, 72 per cent of non-Musk Tesla shareholders voted in favour of awarding Elon Musk 304mn shares of the EV maker. That is the identical amount from a 2018 pay grant that was earlier this year invalidated by a Delaware corporate law court.
The court said first that the 73 per cent of shareholders who had approved the deal in 2018 were uninformed about how tight Tesla directors were then with Musk. After that determination, the court said the shares, now worth about $54bn, was excessively dilutive to other shareholders.
After all that litigation and a new board approval and proxy process, a solid shareholder majority said that they were still fine with giving Musk his shares. The Delaware court theoretically can ignore the most recent vote and proceed with cancelling the grant. But they equally could decide it is not worth overriding shareholder democracy for a second time.
As for Tesla shareholders, they are fully on notice about Musk’s various shortcomings as the Tesla CEO: spending time and Tesla shares to buy Twitter, allegedly treating female co-workers inappropriately, threatening to spend his time on side businesses. All the while, the EV sector gets more cut-throat every year. Tesla shares this week are up slightly this week but down 28 per cent for the year.
Courts exist to enforce neutral standards and protect basic minimum rights of minorities. Corporate law has said that judges will not, by practice, second guess decisions of boards and managers unless there is evidence of conflicts of interest.
Companies then try to use shareholder votes to cleanse those conflicts of interest. The puzzle of Musk is that he clearly gets a longer rope from his shareholders and adoring fans than perhaps any other CEO in history.
There apparently are not that many aggrieved shareholders of Tesla left. But they retain their right to sell their shares and refrain from buying any more. That threat, distinct from legal action, typically prompts all other CEOs to behave responsibly lest they destroy shareholder value. Giving CEOs shares is supposed to align those incentives. Musk, with his new shares, seemingly has more incentive than ever to make the Tesla stock price go up.
Tesla shareholders also agreed with Musk to move its incorporation to Texas. The jurisprudence of that nascent venue is so far unclear. But obviously Musk has not enjoyed Tesla being second-guessed (or him being forced to close the Twitter buyout) in Delaware. If it all goes bad, there will be no excuses.
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