Lawyers for Tesla will gather in a Delaware courtroom Friday to again ask Chancellor Kathaleen McCormick to approve a record stock grant.
In ballots counted at Tesla’s annual meeting June 13, some 72% of shareholders approved a massive compensation plan for Elon Musk. They also approved Musk’s proposal to take Tesla out of Delaware by moving its legal home to Texas.
Whatever the court’s concerns about the 2018 plan, the June balloting, following McCormick’s 200-page decision, was a “fully informed shareholder vote” and approval would be “valid and effective under Delaware common law,” Tesla attorneys said. But court decisions in Delaware and elsewhere have supported the idea that shareholders know “their own best interests,” Tesla lawyers argued to the court. The company called critics a “self-appointed” minority that shouldn’t have standing to stop Musk’s extra pay.
Vanguard said its funds voted against the performance stock grant proposal in 2018 because it would have resulted in big payments to Musk even if Vanguard’s stock “did not outpace other companies.” Vanguard also gave weight to statements by Tesla directors that it is important to keep Musk as CEO and that the award would help “motivate” him to remain because it requires him to hold his new shares for five years. However, McCormick in her January ruling noted that Musk has said he would stay with the company even if he doesn’t get the award.Vanguard joined the majority voting to approve Musk’s plan to move the company’s legal home to Texas, where Tesla is based.
Elson warned this reverses Delaware’s trend of the past 40 years toward more disclosure and respect for “shareholder authority.” He predicts investors “will turn elsewhere,” maybe to federal courts, to protect their stakes in companies with runaway managers.
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