This is a spectacular twist in the legal saga between Elon Musk and Tesla shareholders. After the cancellation in January 2024 of the boss’s compensation plan, the plaintiff’s lawyers are now demanding $6 billion in shares of the automaker.
Elon Musk’s extravagant compensation plan
It all started in 2018 when Tesla’s board of directors adopted a 10-year compensation plan. Granting Elon Musk stock options indexed to particularly ambitious performance criteria. The idea is to encourage the boss to increase Tesla’s capitalization tenfold on the stock market to make it one of the largest companies in the world. Alas, a minority shareholder considers this remuneration excessive and takes the plan to court. He believes that the directors were not sufficiently independent to oppose it.
In January 2024, he was proven right. Judge Kathaleen McCormick strikes down the plan. The latter accuses the board of directors of having provided shareholders with “false and misleading” information. Ordered to return shares acquired since 2018, Elon Musk must return the equivalent of $56 billion in Tesla shares. That is, around 10% of the capital.
An unprecedented fee request
Galvanized by this decision, the shareholder’s lawyers are asking that their fees be paid to them in Tesla shares! They are thus claiming 1.2 million dollars for expenses incurred as well as 29.4 million shares representing $5.96 billion during March 3, 2024.
Well aware of the exceptional nature of such a request, the councils invoke the “enormous benefit” provided to the company. If they are satisfied, this windfall would make them some of Tesla’s largest shareholders with nearly 1% of the capital.
For his part, Elon Musk decided to respond. Furious with the courts in Delaware where Tesla’s headquarters are registered, he asked shareholders to vote for the transfer to Texas. The affair promises to rebound with its share of legal guerrilla warfare between the counsels of the two camps.
Explosive financial and legal implications
If this extravagant claim is valid, it will have major implications. From a financial point of view, it would further reduce Elon Musk’s participation. Which would make him fall in the ranking of the richest men in the world. Above all, by becoming influential shareholders, lawyers could influence the company’s strategy and governance.
On the legal side, this would be a resounding precedent, with a possible impact on the remuneration of big digital bosses and beyond. We would probably see an explosion of shareholder appeals against stock option plans deemed excessive. In the longer term, this case law would contribute to the vast debate on the distribution of wealth within multinationals.
Behind an unusual request for fees, this affair highlights crucial issues of governance and distribution of wealth within large technology companies. If the courts were to grant the $6 billion in actions requested by lawyers against Elon Musk, it would create a precedent with vast financial implications.
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