Tesla once again hits the headlines, and once again there is no talk of the launch of a new car. What makes the news is the now full-blown war declared by a group of shareholders – among these we point out Brad Lander, Amalgamated Bank, AkademikerPension, Nordea Asset Management, SOC Investment Group and United Church Funds – against the company’s management, in particular the CEO Elon Musk.
Casus belli the enormous 2018 compensation plan of around 50 billion dollars by Elon Musk, first approved by Tesla management and then blocked by a judge. But under the ashes lies a deep discontent with the management of the company and for a board of directors, words of the protesters, “totally subservient to the wishes of Elon Musk“.
The 2018 compensation plan grants Musk a bonus ranging from 46 to 56 billion dollars. But a judge blocked everything
Let’s start from the main reason for the controversy, which pits Tesla against the state of Delaware. Elon Musk’s 2018 compensation plan included substantial bonuses if the company grew. For every 50 billion of Tesla’s capitalization, Musk took 1% of all Tesla shares in circulation at the time the bonus was granted. Thanks to the excellent results and constant growth of Tesla in recent years, the value of this bonus has been quantified – depending on the sources – at 46 to 56 billion dollars.
A figure, according to a group of shareholders, unfair and disproportionate. The stakeholders therefore turned to a judge in Delaware – Tesla is formally registered as a company in this American state – with the aim of blocking the payment of compensation. And Judge Kathaleen McCormick agreed with them: the compensation plan was deemed unfair and harmful to Tesla shareholders and it had to be cancelled.
The judge then noted some critical issues in the Tesla board, including the fact that most of the members of the board of directors are linked to Musk by ties of kinship or friendship and the fact that part of the information provided by Tesla to investors, in relation to the 2018 compensation plan, turned out to be false and misleading. The Tesla board of directors reacted to the stop imposed by the judge by bringing the 2018 compensation plan back onto the agenda for new approval, and above all the transfer of Tesla’s registered office from Delaware to Texas. A state deemed more “friendly”.
According to shareholders, the board is excessively tied to Musk. And this hinders his independence
And it is precisely against these maneuvers that the group of shareholders has aligned itself. In a public letter, they urged other shareholders to vote against the management’s proposals. Both that relating to the compensation plan and that relating to the move of the registered office. Not sparing criticism of Musk and the board of directors. “Tesla’s board of directors is excessively tied to Elon Musk, which hinders critical and independent action. Important requirements when talking about the management of a company.“
“Tesla suffers from a fundamental failure in governance. Over the last three years, and especially the last one, Tesla has clearly lagged behind its competitors and the market in general. We believe that these low performances are also the effect of the distractions associated with Elon Musk’s many projects, and in particular his decision to buy Twitter.“
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Elon Musk does too many things, and cannot devote the necessary attention to Tesla
“Elon Musk has used Tesla as his personal treasure chest and for his other business activities” continues the letter, with a reference to the fact that Musk admitted to having moved Tesla engineers from the car company to to Artificial Intelligence.
And the criticism doesn’t end there: the group of shareholders also takes sides against Musk’s multiple management roles: “Elon Musk is too busy, given all the time he dedicates to other companies such as X, SpaceX, Neuralink, The Boring Company and other companies“.
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The drug problem: whoever brought it up in the Board of Directors was forced to resign
The all-round attack also affects the personal sphere, in particular the use of drugs. A recent Wall Street Journal article highlighted how the tycoon has a certain “familiarity with the use of drugs such as ketamine, hallucinogenic mushrooms, LSD, ecstasy and cocaine“. The American portal gave ample space to the worries of Tesla executives and shareholders, worried about the mental health of the company’s CEO.
A concern that a member of the board, Linda Johnson Rice, also expressed during the meeting, but received criticism from the rest of the management. In particular, the board of directors preferred to avoid upsetting Elon Musk, for the sake of the company’s peace of mind. Linda Johnson Rice, disappointed by the other executives, then submitted her resignation.
“It’s another sign of how dysfunctional Tesla’s board is” writes the group of shareholders in the letter. “If the board members decide to look the other way when it comes to drugs so as not to irritate Musk, how can they possibly stand up to Musk on other types of business decisions?“
