Our Friday look at the more bizarre goings on in the wider HR world turns its attention to the US and the latest events surrounding that beacon of ego-free leadership Elon Musk …
Delaware doesn’t seem a particularly offensive place. But it has deeply offended the world’s richest man. A judge in the second smallest US state – where Musk’s Tesla electric car firm is incorporated – has ruled the Tesla, SpaceX and X boss’s $56bn salary agreed in 2018 is bang out of order.
The ruling has drained the charge from Musk’s battery, leaving him spluttering mean things about Delaware into X (formerly Twitter, now owned by Musk). Once fully charged he has vowed to make for Texas.
The case was brought by a extremely minor shareholder in Tesla five years ago, who had accused the company’s chief executive of improperly dictating negotiations over his compensation package. It was also claimed that the board acted without independence.
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“Never incorporate your company in the state of Delaware,” Musk vowed on X in response to the ruling. “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters”.
The ruling can be appealed to the Delaware supreme court.
He has subsequently held a poll on X to ask the public whether Tesla should change the company’s state of incorporation from Delaware to Texas. His many fans on the platform duly voted with 87% in favour of moving.
Showing a fairly unsophisticated grasp of polling data Musk wrote on X: “The public vote is unequivocally in favour of Texas! Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas.”
But who is this Goliath of the US corporate world who can afford to take on the mighty Musk? Step forward Richard Tornetta, who has just nine shares in Tesla. He has not been in touch with the media this past week but what is known about him marks him out as a man apart – our hero is no suit-clad Wall Street clone. For starters, he was the drummer in a thrash metal band, the Dawn of Correction, which has described its sound as “a swift kick to the face with a steel-toed work boot”. He also has a fondness for car audio systems. Musk has certainly felt that steel-toed boot.
Striking down the $56bn salary, Delaware judge Kathaleen McCormick called the share-based package awarded to the Tesla chief executive in 2018 “an unfathomable sum” that was unfair to shareholders. She noted that Musk had “thick ties” with the directors negotiating his 2018 package and had “dominated the process that led to board approval of his compensation plan”. In short, the board of directors had failed to prove the compensation plan was fair or show much evidence that they had even negotiated with Musk.
Delaware has generally been seen as being business-friendly because of its tax law and court system specifically for corporate legal cases. About 60% of Fortune 500 companies are incorporated in the state as a result.
Tesla’s corporate headquarters are already in Texas having been relocated in Austin in 2021 after Musk had been critical of California’s regulations and taxes. Musk’s SpaceX rocket business is also based in Texas and X is opening new facilities in the state.
But switching to Texas will not change the legal basis for the Delaware ruling, experts say, if the appeal fails.
US corporate law commentators say legislators and judges would prefer large investment firms rather than private individuals to clamp down on such vast salary awards because they are better equipped to counter lawyers’ tactics. But fund managers do not want to jeopardise relationships on Wall Street, leaving the battle to be fought by minor investors such as Tornetti.
Eric Talley, who teaches corporate law at Columbia Law School, said of Tornetta: “His name is now etched in the annals of corporate law. My students will be reading Tornetta v Musk for the next 10 years.”
Musk needn’t worry too much, however. According to the Bloomberg billionaires’ index he is worth $202bn, more than the luxury goods tycoon Bernard Arnault, on $183bn, and Jeff Bezos, the Amazon founder, on $180bn.
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