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Comment by epups | Hacker News Reader

The arguments used here are weird. The decision says that Musk was close friends with many members of the board so he effectively controlled it. That's the case for many, if not most public companies.

The other argument was that the board didn't meaningfully push back on the proposed remuneration scheme. Yet, it amounted to a huge gamble - multiplying the value of a 50B company by over 10x -, which in case of success the board agreed to reward with 6% of shares. It sounds silly to me to suggest the board failed their duty when shareholders - including them - had record profits even discounting Musk's reward.

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Having friends in the board is fine. Using it for excessive compensation is not. The court argued that Elon effectively has a full control on the board and they failed to prove whether the package is fair, hence Elon effectively set the package himself. I don't know the technical details on the "fairness" so won't talk about this though.

And because Elon isn’t going to be granted his bonus shares, even more of that will go to others shareholders instead of to Musk. And that’s the point. Let 10 be “no value to other shareholders, all value to Musk” and 0 be “all value to other shareholders, no value to Musk.” That Elon’s proposal amounted to 2.5 instead of 2.1 isn’t the point, it’s that the Board never even tried to negotiate for a number other than 2.5.

> The decision says that Musk was close friends with many members of the board so he effectively controlled it. That's the case for many, if not most public companies.

In Eastern Europe we were calling this tunneling of a company - create a tunnel with help from inside to get riches out and leave the shell to its own demise.

> In Eastern Europe we were calling this tunneling of a company - create a tunnel with help from inside to get riches out and leave the shell to its own demise.

Elon prefers to call it “boring.”

Increasing the share price by 10x and turning the Model 3 into the worlds best selling vehicle is hardly "leaving the shell to its own demise"

*edit: Model Y

The Model 3 is not even close to the “best selling vehicle of all time” by any metric.

https://thedriven.io/2023/05/26/tesla-model-y-overtakes-coro...

I guess it was the Model Y!

Best selling car over a cherry picked time span is quite far from "best selling car of all time".

I think we should wait 1-3 years to judge.

If Tesla doesn't live up to the hype it created - and I believe there is virtually 0% chance it does - and the stock inevitably crashes - say 90% from here, will your judgement be the same ?

Yes, he delivered a 10x return to those shareholders that approved. If they choose to stay invested now and lose money, that’s all on them. They know everything you do, including your expert “0%” analysis.

Well, increasing the share price 10x is not a good benchmark - it should be (and we all know it's not in this case) independent of the CEO - it should be dependent on the economic performance of the company. A CEO with such a huge package as discussed here, may be more inclined to, let's just say be 'overly optimistic'. One such overly optimistic CEO in the same industry recently went to jail.

But anyway, the trail is not really about that - it's about proper governance. If you're a public company you get to benefit from a lot of things, but you do have some obligations. And those were pretty clearly broken - keep in mind that this complaint was filled in 2018 - just after the package was awarded.

Just to be clear - I do think that what Elon Musk did, lifting Tesla from a startup to a top10 carmaker, is absolutely remarkable But this judgment has nothing to do with it.

In the west they call it a "leveraged buyout".

He must not be very good at it because he left most of the value behind

There are now happy Tesla owners everywhere, and it’s perfectly placed to benefit from the AI wave he knew was coming, enough to found OpenAI

"That's the case for many, if not most public companies."

But even if true what effect does that have on her arguments. She never claims having these relationships is unusual. She only states that the minority shareholders were not informed about them.

"Yet, it amounted to a huge gamble - multiplying the value of a 50B company by over 10x -, which in case of success the board agreed to reward with 6% of shares."

Her opinion emphasises that Musk indicated, repeatedly, he had no intention of ever leaving Tesla. What was the gamble. No matter what happens he still stays working there forever. Where is the leverage. Musk was even dumb enough to admit he was "negotiating against himself".

Try going to your boss, promising you will never, ever leave and then ask them for a raise.^1 Imagine the boss has no personal relationship with you and acts in the best interests of the company.

1. Just in case anyone becomes confused: I am not suggesting what Musk was "negotiating" was a "raise", I am simply using as a hypothetical a more common scenario amongst mere mortals where compensation is being negotiated and the threat of leaving can be used as leverage.

> Try going to your boss, promising you will never, ever leave and then ask them for a raise.

That was not a raise, it was a contingent payout. One could argue that kept him focused. Once done, he could scatter his attention to things like hostile takeovers and the meaning of free speech.

> At a high level, the “6% for $600 billion” argument has a lot of appeal. But that appeal quickly fades when one remembers that Musk owned 21.9% of Tesla when the board approved his compensation plan. This ownership stake gave him every incentive to push Tesla to levels of transformative growth—Musk stood to gain over $10 billion for every $50 billion in market capitalization increase. Musk had no intention of leaving Tesla, and he made that clear at the outset of the process and throughout this litigation.

One could argue, as judge argued in the above excerpt, that his 21.9% ownership (before this compensation) of Tesla is what could keep him focused...

One could argue, but it would not be true, because in the real life it obviously didn’t keep him focused (see X, formerly known as Twitter).

In the real life, his twitter antics happened while he believed the compensation scheme would be fulfilled. So real life kind of proves that the compensation scheme didn't provide the sort of focus spoken of here.

E: Hey Boss, I want you to know that I am committed to staying with this company for life, no matter what happens.

B: OK.

E: I would like some incentives, including more money and increased control over the direction of the company if I hit certain milestones.

B: And what if we say no?

E: Um, I guess I'll just keep on working toward the milestones.

Did Musk get suckered into working with more focus than he would have absent the compensation package. As long as he believed he would get it, it worked to keep him focused. Yeah, right. By his own statements he would have kept on working with focus even if he was not promised the compensation package. Either way, there is no need to give it to him. He is not going anywhere.

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