What do you mean consensus? 100% voting yes or no? That makes no sense, can you please provide a link?
A consensus is 100%. It doesn’t mean everyone agrees; it means that no one disagrees
What consensus is not
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Consensus is not a majority vote
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See also: WP:NOTDEMOCRACY and WP:CANVASS
Consensus is not a majority vote. Every opinion counts. Consensus accounts for dissent and addresses it, although it does not always accommodate it. Both consensus and majority voting as decision-making methods require examining the level of support within the group, because consensus refers to opinions or decisions generally accepted within the group. However, consensus is not determined solely by the support ratio, nor is it unrelated to the support ratio within the group; it simply means that decisions cannot be made solely based on a “vote” of the support ratio. A necessary condition for determining whether consensus has been reached is to examine the level of support within the group. An option preferred by 51% of people is generally not enough for consensus. An option that is narrowly preferred is almost never consensus.
-Mr Wiki…
That’s how I understand it too and it makes no sense. I’m pretty sure Axa didn’t mean that otherwise practically no shareholder vote will ever go through.
TL;DR Musk needs to share a bit of the money pot with shareholders, so the opposition stops.
If I understand well, nothing changed from Jan 2024. This review of the case still holds:
It starts with board members telling to the judge “we authorized what Mr. Musk asked”:
The Committee members testified that they took a “cooperative and collaborative” approach, thinking about what “felt fair for Musk,” as they believed that he had to be happy with the plan or else the board’s objectives to retain and incentivize him would not be achievable. The court emphasized that a CEO compensation plan process is inherently adversarial and must involve arm’s-length negotiation with the CEO, rather than “work[ing] alongside him, almost as an advisory body.”
The court would like to see a meeting minute where board discusses if the amount is OK or not. Apparently, that meeting has never taken place.
in the court’s view, none of the individuals involved in the process were independent of Musk, the Compensation Committee never even questioned whether the outsized compensation was necessary to retain and incentivize Musk, and there was no negotiation “at all” with Musk.
This may be the key part. Without independent board members, the law assumes minority shareholders are not effectively informed of the consequences of the compensation package for the finances of the company, therefore any vote under these conditions is rejected by the court.
We note that if the Committee had been clearly independent and the company’s proxy disclosure had been adequate, then the approval by minority stockholders would have been fully informed and the plan could have been subject to business judgment deference under MFW, or at least the burden of proof under entire fairness review would have been on the plaintiff.
The idea of “consensus” comes from negotiations before the vote, virtually everyone agrees with the terms in advance and the vote is just a formality. If no full consensus, rework the terms and try to make everyone happy. A simple way to make the opposition happy is share repurchase/buyback at a nice price by Tesla.
So, lets’ compare. The current vote with a big pay for Mr Musk only leaves happy 2/3 of shareholders. A share buyback would benefit 100% of shareholders. With the payout to Mr. Musk in the billions range, the board has no excuse to tell “we don’t have money to buyback shares at prices that make shareholders happy”.
The bottom of this issues is that decisions do not happen in a void. There are always options. One of them in this case is share buyback. Right now the decision is giving 100% of the money pot to Mr. Musk, and 0% to shareholders. 0% to shareholders is hard to defend as fiduciary duty to shareholders. The board needs to play with those percentages of how to use the money pot, and thus show to the court that they are effectively protecting the interest of shareholders.
Another perspective is that all the court/judge can do is a checkbox exercise with the law. The board could make a theater play of having strong negotiations with Mr. Musk and putting whatever fiction they want in meeting minutes and pretend minority shareholders are properly informed, so the vote is taken as legit by the court. The issue is that they have not made the minimum effort towards those boring procedures. Mr. Musk could invest a bit on this theater play, produce all the required docs, the court ticks all the boxes, the “law is respected” and he leaves with 100 billion. But, that theater play is not even attempted.
PS. Matt Levine at Bloomberg will write soon about this. It will probably be 10x better than my poor attempt. I will share when that opinion piece is published.
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Don’t care what anybody says, no one is worth that much salary-wise.
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Thanks. Now it makes sense. A lot of sense.
Not only that, you see in the original judgement, how quite a lot of the board members were beholden to Musk in some way or another. If you take a big picture view, you could view the whole arrangement as the board and Musk defrauding shareholders.
The situation is interesting because Tesla stocks (if not the business) has been on a meteoric rise so even with the huge payout, early shareholders have done well, so may not begrudge Musk an excessive payout. But some shareholders do, and so the law rightfully protects them.
Another way might be to scrap the payout and if Musk shareholders are really so happy, they can find a mechanism to voluntarily donate an amount to Musk on a per shareholder basis.
The case highlights the drawbacks of a compensation committee not being comprised of at least one clearly independent director. In this case, the two Committee members, although purportedly independent, had strong business and personal ties to Musk. We note that if the Committee had been clearly independent and the company’s proxy disclosure had been adequate, then the approval by minority stockholders would have been fully informed and the plan could have been subject to business judgment deference under MFW, or at least the burden of proof under entire fairness review would have been on the plaintiff.
The court emphasized that Musk already had been very well rewarded for his efforts at Tesla through the increased value of his pre-existing 21.9% equity interest. The court noted the “many examples” of other “Superstar CEOs” (“Zuckerberg, Bezos, Gates, and others”), with large pre-existing equity holdings, “foregoing compensation entirely.”
Nice summary. I think these 2 points are key. Frankly it was amateur hour there, had they had real independent qualified board directors, Musk might have been challenged more, but he could have got his payday. But filling the ranks with ‘yes’ men and failing to even hide that fact doomed the whole charade.
As noted in the last paragraph, why would someone with >20% shareholding need huge further incentives to stay focussed on his multi-billion dollar company?
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Just to dot the "i"s and cross the "t"s the correct way for Tesla to have done this was to form a compensation commission made up of independent people who would recommend board members compensation.
This approach is fireproof although the chances of them recommending $50+ billion compensation were slim to zero.
Maybe Elon could start again in Texas with a new compensation package but if a minority shareholder were to object and raise a court case quoting the Delaware precedent then it might get complicated.
Whichever state you are incorporated in the independent compensation commission is the gold standard.
The Texas Journal of Business Law confirms corporations should follow;
NYSE Rule 303A.05 requires each NYSE listed company to have a
compensation committee composed entirely of independent directors.
Nasdaq’s rules regarding oversight of executive officer compensation are set forth in Listing Rule 5605(d)
Such strong wording. I’d say fraud only happens until the money leaves the company bank account(s).
Until then, it’s only negotiation. The might be great power disparity and information asymmetry between major and minor shareholders, but it is still a negotiation. No defrauding.
During the negotiation, a court has reviewed the terms and said “the plan does not follow the law. but as long as it is a plan and not a payment, all good. Keep dealing until you agree on something”.
Put it this way: let’s say they made it more extreme and gave Elon so many options that they diluted existing shareholders to 0.0001% of the company. Would you consider that fraud or still just negotiating?
These laws need to be strongly enforced as otherwise it could undermine the whole foundation that modern business is built on. I had former clients lose a lot of money in countries like Russia where suddenly their very valuable holdings were diluted to a fraction of a percent.
If that sort of thing were to be allowed to happen in the US, I think it would be catastrophic. It’s one reasons I’m watching how Trump’s 2nd term pans out. I don’t think it will happen, but there’s a non-zero chance of an un-ravelling if the rule of law is undermined.
A post was merged into an existing topic: US election 2024 and US politics in general (Part 2)
Ahhh, I think I failed at reading the available info. The case is more complex than it seems.
So, here’s Matt Levine’s opinion piece from today.
A very interesting question on human nature. Tesla is already a 1+ trillion USD company. The fact that the board wants to pay for something they could have for free if they respect the initial judge ruling shows that they are not precisely independent.
Let’s be real, would you fight for the right to pay for something a judge said you don’t have to pay for? Just out of the goodness of your heart? I need customers like these ones! Where do you find people like this?
The Musk pay thing - Matt Levine (03.12.2024)
Obviously Elon Musk doesn’t need the money. He is, today, by a substantial margin the richest person in the world. SpaceX, his second-biggest company, seems to be worth about $350 billion, and Musk owns about 42% of it. xAI, the artificial intelligence company that Musk launched about a year ago, is worth $50 billion already. The point here is not that Musk happens to own some assets that happen to be worth a lot of money; the point is that Musk has an uncanny ability to generate money. He was a bit late to launching an AI company, but it’s worth $50 billion. We have talked about his ability to glance at a meme asset and cause its price to go up. If he wants to buy a sandwich, or a public company, and he doesn’t have his wallet on him, anyone in his vicinity will happily give him the money. “The way finance works now,” I once wrote, “is that things are valuable not based on their cash flows but on their proximity to Elon Musk,” and that has only become more true.
In early 2018, when Musk was only worth a few tens of billions of dollars, the board of directors and shareholders of Tesla Inc., his biggest company, voted to give him an enormous package of stock options if he hit some aggressive operational and valuation targets. If Musk succeeded in hitting every milestone in the options package, the options would be worth about $56 billion, Tesla would be worth about $650 billion (up from $59 billion), and Musk’s existing stake in Tesla — the shares that he owned before he got the options grant — would be worth about $140 billion. All of these numbers seemed, at the time, unfathomable: The deal was that if Musk made Tesla one of the largest companies in the world, it would make him the richest person in the world.
And then he did it. Tesla today is worth more than $1.1 trillion, he’s the richest person in the world, and he got all the stock options, which as of yesterday were worth about $101 billion.
And then this year a judge in Delaware, where Tesla was incorporated, took them away from him, finding that Tesla’s board of directors, in 2018, was too dominated by Musk to negotiate his pay, and that the shareholders who approved the deal were not fully informed. Musk was understandably aggrieved, and Tesla asked shareholders to re-approve the options to overrule the judge’s opinion. This struck me as roughly fair: Ultimately the shareholders should get to decide how much to pay their chief executive officer, and if they weren’t fully informed when they voted on the options in 2018, then why shouldn’t they just be able to vote again, in 2024, with full information? But actual Delaware law experts were skeptical, and Tesla’s proxy statement for the new vote admitted that “even a favorable vote by our stockholders to ratify the 2018 CEO Performance Award may not fully resolve the matter.” I wrote:
It is possible that the rule of this case is that Tesla is not allowed to pay Musk $55.8 billion, no matter what its shareholders think, no matter how many of them vote to approve it in a fully informed vote. It’s enough to make you want to move to Texas.Oh yeah — Tesla also asked its shareholders to approve moving from Delaware to Texas, so that it won’t have to deal with Delaware judges again.
The shareholders voted yes on both questions, and now Tesla is incorporated in Texas. But did the new shareholder vote work to get Musk his options back? No:
Elon Musk’s record-setting Tesla Inc. pay package was struck down once again by a Delaware judge, threatening to wrest billions of dollars from the world’s richest person and one of Donald Trump’s closest confidants.
Delaware Chancery Court Judge Kathaleen St. J. McCormick ruled Monday that Tesla’s board was improperly influenced by Musk when it adopted the billionaire’s plan in 2018. It was the second time she rejected the pay package as excessive, sticking with her original finding in January even after shareholders backed the plan and Musk asked her to reconsider.Here is her ruling, which pretty much says that shareholders can’t overturn a court decision:
There are at least four fatal flaws. First, the defendants have no procedural ground for flipping the outcome of an adverse post-trial decision based on evidence they created after trial. Second, common-law ratification is an affirmative defense that must be timely raised, which means that, at a minimum, it cannot be raised for the first time after the post-trial opinion. Third, what the defendants call “common law ratification” has no basis in the common law—a stockholder vote standing alone cannot ratify a conflicted-controller transaction. Fourth, even if a stockholder vote could have a ratifying effect, it could not do so here due to multiple, material misstatements in the proxy statement. …
Defendants argue that transactions resulting from breaches of the duty of loyalty can be put to a stockholder vote at any time for any purpose—including to extinguish already adjudicated claims or reverse the outcome of a court decision—because “stockholders hold the power to adopt any corporate acts they deem in their own best interests.” That statement is dubious generally and unquestionably false in the context of a conflicted-controller transaction.(She also decided that the lawyers who brought the case should get paid $345 million for winning, which is a lot, but way less than the $5.6 billion they had asked for.)
What happens next? Well, Tesla will probably appeal; maybe this ruling is wrong. (Or, more practically, maybe Chancellor McCormick’s previous ruling was wrong, and Musk’s pay package was always fine; the second shareholder vote is helpful evidence of the fact that fully informed shareholders wanted to pay Musk like this, but not central to the appeal.)
But what if Tesla loses the appeal? Well, Tesla’s board could just decide to give him the options again, and ask shareholders to vote to approve them again. This is slightly different from the previous vote this year: There, Tesla asked its shareholders to “ratify” the options that Musk got in 2018, to reverse the judge’s decision and make it so that they were never taken away. This did not work; a shareholder vote, it turns out, cannot reverse a judge’s decision. But giving him a new grant of options — the same amount of the same options as he got in 2018 — would not have that problem.
It would have other problems:
For accounting purposes, when Tesla gave Musk a package of at-the-money options in 2018, they had a fair value of about $2.6 billion, which was the accounting expense that Tesla booked for them. Giving him the same options — now very in-the-money — in 2024 “would potentially result in an accounting charge in excess of $25 billion.” [2] It is hard for me to believe that Tesla shareholders will care that much about a giant one-time accounting charge for paying Musk, but nobody likes a big accounting charge.
For tax purposes, getting paid in at-the-money options that later go up gets favorable tax treatment, while getting paid in hugely in-the-money options gets bad tax treatment. If Musk got a new package of extremely in-the-money options, they would be taxed at a much higher rate than the original 2018 options would have been.
What if a shareholder sued about the new package? You know, “Musk still dominates Tesla’s board, Tesla’s board still is not negotiating independently on behalf of shareholders, this is still not a good deal for shareholders, and the shareholder vote was still not fully informed.” Of course, with a new package, any disgruntled shareholder would have to sue in Texas, not Delaware, and everyone seems to assume that Texas’s new business courts will be much more permissive and Musk-friendly than Delaware’s. But nobody really knows! The extremely funny outcome here would be Tesla giving Musk a new pay package and a Texas court striking it down.
There are other possibilities, though. Tesla could give Musk a different pay package, one using more at-the-money options to get better tax and accounting treatment. It is hard to figure out how to do that, though. Musk’s vanishing 2018 options are worth about $101 billion now; giving him that value using at-the-money options would require a lot more options.
Or, you know … they could drop it? Musk does not need the money. At various points he has argued that he needs more Tesla options, not for their value, but to cement his control of Tesla; in January he posted on X that he was “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control,” and that “unless that is the case, I would prefer to build products outside of Tesla.” But:
Winning the shareholder votes on his pay and on moving to Texas, by wide margins, suggests that shareholders will support whatever he does and he doesn’t need 25% of the stock to have effective control of Tesla; and
He is building products outside of Tesla! He’s got a $50 billion AI startup now! The argument “I need more Tesla stock or else I’ll go do my AI stuff elsewhere” was a good threat a year ago, but once he has gone and done it, there is less of a case for Tesla to give him the stock. In 2018, when Tesla gave him this options package, the deal was “we will make you vastly wealthier in exchange for your undivided attention.” That’s no longer the deal! His attention is divided, and he has so much wealth from so many other sources that Tesla is no longer the obvious highest bidder.
Obviously they are not going to drop it. Still. It seems to me that, in 2018, this options package was a pretty good deal for Tesla, it got what it bargained for, and it was a bit strange that a Delaware court tore up the deal. But it is less clear to me that, in 2024, fighting to restore this options package is a good deal for Tesla, or that it will get much from doing so. Tesla already got what it wanted from Musk’s 2018 pay deal (it is a trillion-dollar company), and so did Musk (he’s the richest person in the world, with $140 billion of Tesla stock). As a matter of principle, and pique, they probably do need to find a way to get him another $100 billion. But as a matter of corporate finance, I’m not sure it’s necessary.
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These two quotes sum up what I was trying unsuccessfully to argue today.
The amount of money at stake probably means that Musk should pursue all possible avenues to recover it. Now that he is best buds with the incoming President, maybe he can find other ways to get what he wants?
The board members need to tread carefully. It seems to me that they are working for the interests of Elon and not of the shareholders. And their job is to work for the interests of the shareholders (failing to do their job the first time around is partly what got them into this mess).
If they give away money unnecessarily, then they may become personally liable.
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You’re missing the point that over 2/3 of the shareholders voted for.
You’re missing the point that 2/3 voters means nothing. Imagine if Elon owned 2/3 of the company, you think he should be able to vote himself a greater and greater shareholding until all the other shareholders are squeezed out?
2/3 of the shareholders EXCLUDING Musk and his brother