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Robyn Denholm Warns Musk Might “Step Back” If Pay Package Is Not Restored

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There are a lot of important elections happening this year — Mexico, France, South Africa, the UK, and the US being just a few of the more notable ones. But there is one vote happening on June 13, 2024, that could profoundly alter the world as we know it. That’s the day Tesla shareholders will decide whether to reinstate the $55.8 billion pay package for Elon Musk that Chancellor Kathaleen St. Jude McCormick of Delaware invalidated four months ago. In her decision, she wrote, “Swept up by the rhetoric of ‘all upside,’ or perhaps starry-eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question — Was the plan even necessary for Tesla to retain Musk and achieve its goals?”

McCormick determined that because Musk was a controlling shareholder at the time the pay package was approved, there was a potential conflict of interest. That conflict convinced her that the pay package should be subject to a more rigorous standard. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” McCormick wrote in her 200-page-long decision. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”

McCormick specifically cited Musk’s long business and personal relationships with compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias. She also noted that the group working on the pay package included general counsel Todd Maron, who was Musk’s former divorce attorney. “In fact, Maron was a primary go-between Musk and the committee, and it is unclear on whose side Maron viewed himself,” the judge wrote. “Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”

Show Me The Money!

A couple of billion words have been written about Musk and his pay package — quite a few of them here on CleanTechnica — and it is fair to say there are strong opinions on both sides. Several major shareholders have indicated they will vote against approving the pay package, as have several investor relations firms, such as Glass Lewis.

My colleague Carolyn Fortuna wrote an article last month that highlighted the efforts the Tesla board of directors is taking to get shareholders to vote in favor of Musk’s original pay package. That report says the Tesla board has hired a strategic adviser who is working with an outside law firm to influence large investment fund managers. Those funds hold about 46% of the company’s shares. The proponents of Musk’s pay package have created a Vote Tesla website, which proclaims it is “Protecting Your Investment and Tesla’s Future.” Vote Tesla takes the position that the Court’s decision, if implemented, would deprive Musk of “any compensation for the tremendous accomplishments that have generated significant stockholder returns in less than six years.”

According to The Guardian, Denholm sent a letter to investors last week saying the vote is “obviously not about the money,” because Musk will still be one of the richest people in human history regardless of whether the pay package is approved or not. Musk’s fortune stands at $203 billion according to Bloomberg, making him the world’s third wealthiest person.

Musk Might “Step Away,” Denholm Says

Here’s the zinger in the letter to investors. Denholm warned that Musk could step away from Tesla, or spend less time at the company, if the vote on June 13 went against him. “What we recognized in 2018 and continue to recognize today is that one thing Elon most certainly does not have is unlimited time. Nor does he face any shortage of ideas and other places he can make an incredible difference in the world. We want those ideas, that energy, and that time to be at Tesla, for the benefit of you, our owners. But that requires reciprocal respect.”

She went on to say in her letter that the purpose of the 2018 deal was to “keep Elon focused on Tesla and motivated to achieve the company’s incomparable ambitions. Upholding our end of the bargain, then, by ratifying the decision we all made in 2018, is more important than ever. If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal.”

Musk owns approximately 13% of Tesla, but he cannot vote in favor of his own pay package. Neither will his brother, Kimball Musk, be able to vote his shares.

Is The Tesla Board Impartial? Should It Be?

Now here’s the thing, people. According to Salary.com, in 2020, Robyn Denholm received a total of $5.8 million in compensation for her services as chair of the Tesla board of directors. There has been some controversy about how much Tesla board members are paid, but ask yourself this. If you are on the Tesla board earning millions of dollars a year, and your position is dependent on staying in the good graces of Elon Musk, how likely are you to do anything to oppose the famously mercurial man? If you said, “Not too likely,” give yourself a gold star and go to the head of the class.

Last month, ISS, a top proxy advisory firm, recommended shareholders vote against the Musk pay package, calling the compensation excessive. Glass Lewis, another advisory firm, has recommended a vote against it as well. Bailie Gifford, a top 15 investor in Tesla, has said it plans to back the package, while Calpers, the US public pension fund and a top 25 shareholder, has said it plans to vote against. Ross Gerber, a prominent Tesla shareholder, has also announced he is voting against the proposal, saying Musk’s escapades on X, formerly Twitter, have “absolutely damaged the [Tesla] brand.”

Should Musk’s behavior following the initial approval of the gigantic pay package count against him? Arguably not, but when it comes to voting, emotions are more powerful than facts or logic. If you are a small investor with a few shares of Tesla, your vote won’t count for much. There is an expression in Vietnamese culture that says, “When the elephants fight, the grass gets trampled.” We small shareholders are the grass in this fight.

Tesla & Texas

In her letter, Denholm also asked shareholders to approve moving the company’s legal base to Texas. Tesla is incorporated in Delaware but Musk moved immediately to switch its registration to Texas, where its headquarters are now. “Being incorporated in Texas provides the best platform for Tesla to grow and innovate because we believe that Texas legislators and courts are in the best position to fairly develop and make decisions about corporate law that applies to Tesla, especially when our next big bet pays off beyond anyone’s wildest expectations,” wrote Denholm.

That next big bet, presumably, is the grand announcement on August 8 that Musk hinted about earlier this year. It is widely assumed we will be told on that date that Tesla has cracked the code on autonomous driving software and a bevy of Tesla robotaxis are about to issue forth from its assembly plants worldwide. That may be so, but Musk is known for making grand pronouncements years before they become reality. Expect more of the same come August.

With regard to Denholm’s backhanded slap at Delaware, that state is home to most of the major corporations in America precisely because it has over a century of legal experience in corporate matters and is seen as a model for how corporate governance should be done. CleanTechnica readers will note that Musk up and moved the company headquarters to Texas because of a public spat with a health official in Fremont, California. Now he wants to move the company’s state of incorporation to Texas because he is miffed at the decision of a Delaware judge.

One gets the impressing the Great and Powerful Musk is little more than a petulant child who will take his ball and go home if he doesn’t get his way. It should also be pointed out that despite Denholm’s glorification of Texas in her letter, that state still refuses to allow Tesla to sell is cars directly to Texas residents. So much for it being a friendly venue for Tesla.

What If Musk Steps Back?

Dan Ives, an analyst at Wedbush Securities, told The Guardian, “Musk is not going anywhere but if the comp package is denied he will potentially shed his CEO title and become less involved in Tesla over time.” That is one scenario. Another is that he pulls another stunt like he did when he fired the entire Supercharger team in a fit of pique recently. Anything could happen when Musk is the ladle stirring the soup.

Zachary Shahan, the glue that holds CleanTechnica together, wrote recently about what might happen if Musk loses the shareholder vote. One possibility is that Tesla the car company gets sold to a competitor and Musk refocuses his attention on SpaceX, X.com, Xai, or some other venture with X in the title. Would that be a crushing blow to the EV revolution, which is what most CleanTechnica readers really care about? Probably not. Tesla has largely accomplished all a first mover in new technology could hope for. It has forced the rest of the auto industry to confront the future. It has spurred exponential growth in battery technology and forced a sea change in what customers expect in an automobile. By that measure, Tesla has been wildly successful, far beyond what anyone thought possible more than a decade ago when Tesla first burst upon the scene.

Imagine, for a moment, that Tesla the car company gets taken over by an experienced global automaker, one that knows how to build quality cars in high numbers and market them to a world audience. Hyundai Motor Group comes to mind first in this discussion, but what if it is BYD? Apple has squandered more than $2 billion on creating an automobile and has more money in the bank than it knows what to do with. What a delicious irony it would be if Tim Cook, who refused to take Elon’s calls years ago, wound up adding Tesla to the Apple empire?

That is all idle speculation, of course. Musk’s pay package will get approved by a narrow margin and things will go on much as they did before the vote, with Musk flitting in front time to time to create some chaos before flitting out again to create some chaos elsewhere. Still, it’s intriguing to think what Tesla could be if managed professionally, rather than on the basis of whims.


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Steve Hanley

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new." You can follow him on Substack and LinkedIn but not on Fakebook or any social media platforms controlled by narcissistic yahoos.

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