Musk expects more from shareholders than himself
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, June 12 (Reuters Breakingviews) -A deal is a deal – sometimes, it seems. Discord is growing among electric-car maker Tesla’s TSLA.O investors over a Thursday vote to ratify Elon Musk’s $56 billion pay package. In some ways, the enormous payout is so absurd, it aligns shareholders with Musk. But months of high-stakes hectoring has revealed gross hypocrisy and changed the facts. Tesla’s leader and its board have degraded credibility needed to side with Musk.
This mess started in January, when a Delaware judge struck down Musk’s 2018 incentive package, finding that it was unfair to ill-informed shareholders. Tesla put the issue back to a vote, hoping to reiterate investors’ consent from six years ago to sway the legal case. The results of that vote will be unveiled tomorrow.
The pay appeared reasonable enough, even given the huge sums involved. Sure, it was crazy, but so was the plan’s milestones – including growing market value 11-fold. Crucially, fixing the impasse could have preceded addressing other issues and refocusing the oft-wandering executive.
And issues need addressing. Leave aside Tesla’s apparently trimmed ambitions on a super-cheap car, or whether Musk appropriately balances Tesla’s interests with his other companies’, a problem gaining urgency. Instead, look at Tesla’s executive departures: Drew Baglino, battery chief; Rebecca Tinucci, who led the company’s charging network; Zachary Kirkhorn, the finance chief once seen as Musk’s potential heir. In a circular argument, Musk is the crucial fulcrum on which Tesla rests by pure attrition.
The trouble is that Tesla boasts an eye-popping valuation, which is reinforced by Musk’s presence. At 62 times expected earnings, according to Visible Alpha, Tesla’s share price multiple wildly outpaces tech darlings Microsoft MSFT.O and Nvidia NVDA.O. The strongest argument to support Musk - as shareholders like Baillie Gifford seem apt to do - is retaining that magic.
Worse, the company has dug in fighting in ways that seem hypocritical. Tesla launched a PR campaign to whip the vote with greater enthusiasm than it’s ever marketed its cars. Musk lambasted dissenting shareholders, like California’s CalPERS, as having “no honor.” And now, with Musk Tesla’s ever-more-key man, board missives imply he has “other places” he could abscond to. Worst of all, it’s still unclear whether a vote will actually sway Delaware.
That shareholders have qualms about what they did six years ago is reasonable. Musk knows the feeling. After agreeing to buy Twitter for $44 billion in 2022, he tried to terminate the deal over claims about inauthentic user numbers. He felt the facts had changed. His attempt failed, perhaps because litigation was a threat. But the only contract Tesla has with shareholders is to be a stalwart fiduciary of their money. Investors now have enough proof to vote in their interests, not Musk’s.
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CONTEXT NEWS
Shareholders of electric-car maker Tesla are voting on a proposal to ratify CEO Elon Musk’s 2018 incentive package, valued at up to $56 billion at the time. The result will be announced at a meeting on June 13.
A Delaware court in January ordered the package, which was previously approved by investors, to be rescinded because it was unfair to shareholders. In a proxy filing announcing the vote, Tesla said that its advisors “could not predict with certainty” whether the vote would remedy the legal issue.
Shareholders including Californian pension funds CalPERS, which voted in favor of the package in 2018, and CalSTRS have said that they will vote against ratification. They join Norway’s sovereign wealth fund and billionaire Leo Koguan in opposition. Ron Baron of Baron Capital and Cathie Wood of Ark Invest have voiced support, while Baillie Gifford will vote in favor of the package, Bloomberg reported. T Rowe Price also said that the pay plan shows “strong alignment” with investors.
Tesla's market value falls below Musk's milestones Tesla's market value falls below Musk's milestones https://reut.rs/4cjTbC7
Editing by Lauren Silva Laughlin and Pranav Kiran
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