A long-running dispute about Elon Musk’s multibillion-dollar pay package from Tesla moved a step closer to resolution Wednesday as the Delaware Supreme Court heard arguments in an appeal filed by the company.
Tesla is challenging a 2023 decision by a lower-court judge, who found that shareholders had not been properly informed about the plan that helped make Mr. Musk, the automaker’s chief executive, the world’s richest person. The judge, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery, also found that members of Tesla’s board were not sufficiently independent.
Besides affecting Mr. Musk’s wealth, a decision in the case could have ramifications on where businesses are incorporated. Many large American companies have long been domiciled in Delaware because it is widely considered to have strong corporate laws and its courts are seen as efficient at resolving disputes. The state, which has sought to burnish and protect that reputation, relies on the revenue and jobs that come with being the legal home to so many businesses.
At an hourlong hearing in Dover, the justices considered Tesla’s argument that Delaware courts should honor a vote by shareholders last year, after Ms. McCormick’s decision. That vote reaffirmed the compensation package, which is worth more than $50 billion.
Some of the justices asked questions that seemed sympathetic to Tesla’s argument that the second shareholder vote fixed flaws in how the package was formulated in 2018. Ms. McCormick ruled that Mr. Musk manipulated the negotiations with Tesla’s board and that the company did not disclose some board members’ conflicts of interest.
Justice Karen Valihura implied that upholding the lower-court decision would leave Mr. Musk with nothing to show for his management of Tesla. “Do you have a case where a court has equitably rescinded an executive’s compensation after years of work?” she asked Gregory Varallo, who represented the dissident shareholder who filed the suit.
Charles Elson, a prominent authority on Delaware corporate law, said after the hearing that Supreme Court decisions were nearly impossible to predict based on the questions that justices ask. But he said the court may want to demonstrate its independence after Mr. Musk attacked Ms. McCormick’s character and integrity on social media and in public statements.
“There’s an institutional bias here to support a judge who did a careful job,” said Mr. Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.
Generally the court takes several months to issue a decision.
In a measure of the case’s significance for executive pay, it attracted a large number of briefs from various people and groups. Mr. Musk’s supporters included Sequoia Capital, a prominent venture capital firm; the U.S. Chamber of Commerce; and a collection of social media influencers focused on Tesla.
Sequoia, an early investor in Apple, Google, Nvidia and other technology companies, argued in a brief that Mr. Musk belonged to a group of visionary leaders who “propelled the creation of vast new categories of technological innovation that, in turn, spawned enormous growth beyond just their adjacent technologies.”
A decision against Tesla would discourage such visionaries, the firm said.
Critics say that affirming Mr. Musk’s compensation would set a dangerous precedent. “It’s the largest package in history, awarded to the richest man on earth and someone who is also one of the most powerful men on our planet,” Mr. Varallo told the justices. “The trial court did its job.”
Whatever the court decides, Mr. Musk is likely to receive compensation that is unheard-of in American corporate history. Tesla moved its corporate domicile to Texas after Ms. McCormick’s decisions, and the board of directors has promised to give Mr. Musk the shares he would have received even if the Delaware appeal is unsuccessful.
The Tesla board is also asking shareholders to approve a new package in November that could increase Mr. Musk’s wealth beyond a trillion dollars if he achieves a series of milestones during the next decade, including raising Tesla’s stock market value to $8.5 trillion from about $1.4 trillion today.
Some lawyers and academics urged the court to uphold the lower court’s decision.
A brief submitted by law professors at Stanford University Law School and several other institutions said the second shareholder vote was invalid because Mr. Musk had threatened to pursue interests outside the company if he didn’t get his way.
“For a stockholder vote to have meaning, it must be uncoerced,” the professors wrote.
Jack Ewing covers the auto industry for The Times, with an emphasis on electric vehicles.
The post Delaware’s Highest Court Considers Elon Musk’s Tesla Pay Plan appeared first on New York Times.
