Elon Musk takes the stand in lawsuit over his Tesla pay
Tesla CEO Elon Musk tested this morning in a shareholder lawsuit examining the massive compensation package that helped make him the world’s richest person.
Tesla is being sued by plaintiff Richard J. Tornetta, who says that the company was wrong in awarding Musk his compensation package in 2018, which shareholders approved at the time. Tesla said at the time it could be worth nearly $56 billion, and the net value today is $50.9 billion.
Musk took the stand in the Delaware Court of Chancery in Wilmington shortly after 9 am Musk’s testimony came just as he is asserting his control over Twitter, overnight giving an employees an ultimatum to become “extremely hardcore,” involving “working long hours at high intensity ,” or leave the company.
Musk began the day under questioning from his defense attorney and an attorney for the plaintiff, where they asked him about Tesla’s governance and his time spent at the company, as well as his relationship with the board, which is supposed to be independent from Musk and represent shareholders. Musk acknowledged his friendship with board members, including some shared family vacations. Under questioning, Musk defended himself, saying he upheld his duty to increase Tesla’s market value, but conceded that he at times does not seek board approval for public statements.
The lawsuit alleviates that Musk’s huge pay package was unjust enrichment, and alleviates the board failed to meet its legal duty to act in the best interest of Tesla shareholders. The suit describes Musk as a “part-time CEO,” as he leads other ventures. One of the points of contention in the case is whether or not Tesla’s board is truly independent from Musk and represents shareholders, or if he had undue influence on the board to award him such a massive payday.
Musk himself controls more than 20% of all outstanding Tesla shares, including unexercised options.
Musk initially denied Thursday that he essentially negotiated against himself regarding how many shares he would receive in the pay package. (To negotiate against oneself would essentially give Musk total control over the outcome, and raise big questions about the board and if it met its fiduciary responsibilities.)
But the plaintiff’s attorney Gregory Varallo then replayed some of Musk’s deposition in which he said at one point regarding the pay package, “that was I guess me negotiating against myself.”
Musk then acknowledged saying this. It was one of several occasions where Varallo appeared to highlight inconsistencies in Musk’s statements, current and former.
Fewer than three minutes into questioning, Musk said that he believed that there had been consultation with the board of directors before his title changed to “Technoking.”
Varallo then played back Musk’s deposition in which Musk said that he hadn’t consulted with the board over the title change.
Musk also had said in his deposition, which was replayed in court Wednesday, that he was the person that came up with the vision for Tesla.
But in court Wednesday Musk struck a different tone, and objected to being asked the question in a yes-no format.
“I believe you are asking complex questions where yes or not is not possible. Yes is more accurate than no,” Musk said Wednesday. “But your question is a complex question that is commonly used to mislead people.”
Varallo highlighted the degree of control Musk holds over Tesla.
Musk said he didn’t seek approval when he announced a potential stock buyback recently. He also said that he didn’t seek approval over stating that he saw a path to Tesla becoming worth more than Apple and Saudi Aramco, the two most valuable companies in the world.
The plaintiff’s lawyers have described the package this week as close to the gross domestic product of the entire state of Delaware, and vastly more expensive than building the World Trade Center. They’ve also contrasted Musk’s compensation with the average Tesla salary, which they’ve said is $40,000.
While the trial is focused on Musk’s compensation, the lawyers for the plaintiffs asked a wide variety of questions concerning his governance of Tesla. Musk protested a question regarding when he tweets about Tesla.
“We’re on cross-examination in an interesting case Mr. Musk,” Varallo fired back. “So when your lawyer wants to make an objection he has a right to do it, but sadly you don’t. I suspect that he will if he doesn’t like the question.’
The exchange led to Musk repeating his criticisms of the SEC.
“The consent decree was made under duress,” Musk claimed Wednesdayreferring to a 2018 settlement with the SEC over Musk’s claims that he had “funding secured” to take Tesla private at $420 a share. “An agreement made under harshness is not valid as a foundation of law.”
At a TED conference earlier this year, Musk said he agreed to a settlement only because if he continued to fight the SEC, Tesla’s banks would have cut off funding at a time when it needed cash. “I was forced [to lie] to save Tesla’s life and that’s the only reason,” Musk said at the April event.
Varallo then asked if Musk had any legal training. Musk described some familiarity.
“If you’re in enough lawsuits you pick up a few things along the way,” Musk said.
Tesla executives have defended Musk’s pay package in two days of testimony so far.
“It was around motivating him to achieve things that were bold and audacious and him putting his time and energy into that as opposed to his other interests,” Tesla board chair Robyn Denholm tested Tuesday. Musk was interested in funding inter-planetary travel, she said. Beyond Tesla, Musk is also the CEO of SpaceX and owner of Twitter, as well as leading the Boring Company, which specializes in underground tunneling, and he is the founder of Neuralink, which seeks to put computer chips in people’s brains.
Musk’s compensation package goals were characterized t as lofty and incredibly difficult to achieve.
Former Tesla Chief Financial Officer Deepak Ahuja described the plan as “extremely high-risk, high-reward.”
“Even though I believe in Tesla deeply, I felt the level of difficulty of these milestones was so high that for a mere mortal like me, I did not find this as a compelling incentive plan at a personal level,” Ahuja said.
Musk pushed for shareholders to approve the plan, warning that he was “very offended” by a lack of support and those who opposed it would not be welcome in any of his companies, according to emails read in court by the plaintiff’s attorneys.
Chris Isidore contributed to this story.