Tesla’s The company’s annual meeting on Thursday in Austin, Texas, is set to hold a final vote on a controversial proposal asking shareholders to “approve the grant of 100% performance-based stock options to Elon Musk” that were granted in 2018.
Even if investors support the measure, the final say lies with the courts.
This proposal is dozen The measure, which shareholders must consider, is on the ballot after a Delaware court in January ordered the dismantling of Tesla’s CEO compensation plan, which previously included performance-based stock options worth about $56 billion.
Judge Katherine McCormick found that Tesla’s directors lacked independence from Musk, failed to negotiate with him at an appropriate arm’s length and failed to give shareholders the full picture before asking them to vote on the 2018 compensation plan.
Ann Lipton, a corporate and securities litigator who now teaches at Tulane University Law School, said shareholders are not in a position to overturn the judge’s decision.
“Some people seem to (mistakenly) believe that voting yes will resolve the legal dispute,” Lipton told CNBC in an email. “It won’t. It will only make the dispute more complicated.”
A vote to reinstate the compensation plan would be a public relations win for Musk, who is tackling big challenges at Tesla and elsewhere. The electric-car maker has been hit by declining sales due to an aging lineup, growing competition, especially in China, and a weakening brand. Recent Research Some of this is said to be due to Musk’s “erratic behavior” and “political rants.”
Large institutional investors, including CalPERS and CalSTRS (the large California retirement systems) and Norway’s sovereign wealth fund, SOC Investment Group, have staunchly opposed voting on the compensation plan.
“Compensation is excessive relative to executives at industry peers, results in significant shareholder dilution and is not linked to Tesla’s long-term profitability,” CalPERS CEO Marcy Frost said in a statement. statement on wednesday.
In contrast, Tesla said in an April proxy filing that it had heard from several institutional investors who indicated they would support a vote to oppose the court’s decision and reinstate Musk’s compensation package.
Sarath Sangha, a professor at Yale Law School, said the proposal to approve Musk’s compensation plan was an effort by the company to fix what the court called a “flawed process.” Article 204 Delaware Business Law.
““There needs to be an independent board that negotiates with the CEO and then submits all the appropriate details required for a vote,” Sangha said. “The court said they did not do that. And even if there was a majority vote in favor of approval, it would likely be challenged and require further judicial review.”
Sangha said if shareholders vote overwhelmingly in favor of the compensation plan, it could help persuade a court to give Musk a choice in the future.
Most Tesla shareholders had until the close of business on Wednesday to submit their votes. The remaining shareholders in attendance are eligible to vote in person or online on Thursday.
In addition to voting on the compensation package, Tesla shareholders will also decide whether to relocate the company from Delaware, where most large public companies are incorporated, to Texas, where Tesla’s largest U.S. factory is located.
Musk’s recommendation to the company to relocate followed a ruling by McCormick in the Delaware Court of Chancery.
Shareholders also submitted a proposal calling for Tesla to provide an “annual report on its efforts to combat harassment and discrimination.” The company is urging investors to reject the proposal, even though Tesla and SpaceX face state and federal investigations, as well as civil lawsuits, for alleged sex and racial discrimination.
Tesla shares are down 29% this year, well below the Nasdaq’s 17% rise, and Mr Musk has urged shareholders to look past the company’s current situation and see a future centered on artificial intelligence software, robotaxis and robotics.
“If you don’t believe Tesla can solve the self-driving problem, I don’t think you should invest in the company,” Musk said during the company’s most recent earnings call in April. He added, “We will solve it, and we have solved it.”
Musk has been making these claims for years, but the company has yet to deliver.
He still has friends and followers.
Altimeter Capital CEO Brad Gerstner said on CNBC’s “Halftime Report” on Tuesday that he believes Tesla is the leader in self-driving technology.
“I think Elon’s done an extraordinary job, and I think his lead in AI and full self-driving compared to other manufacturers in the world is vastly underappreciated,” said Gerstner, who owns a small stake in Tesla.
Musk has been promising software that can turn existing Tesla cars into self-driving vehicles since 2016, but competitors including Pony.i, Didi Chuxing and Waymo have developed robotaxi and are already operating commercial services.
clock: Ultimate Meter’s Brad Gerstner