A Delaware judge has reaffirmed her decision to reject a multibillion-dollar pay package for Tesla CEO Elon Musk, despite shareholder support for the compensation deal. The ruling, issued by Chancellor Kathaleen St. Jude McCormick of Delaware’s Court of Chancery, emphasized the necessity for corporate governance practices that safeguard shareholders’ interests.
The judge concluded that Tesla’s board was inadequately independent in its oversight of Musk, raising concerns about potential conflicts of interest. “There is no legal precedent to reverse the earlier decision,” McCormick stated, highlighting that allowing defeated parties to fabricate new facts to alter judgments could lead to interminable lawsuits, undermining the judicial system’s integrity.
In her comprehensive 103-page opinion, McCormick criticized the arguments put forth by Tesla’s defense team as “unprecedented theories” that diverged from established legal principles. Moreover, McCormick identified what she termed “material misstatements” regarding the implications of the shareholder vote to reinstate Musk’s pay, which is indicative of a troubling lack of transparency.
Following the ruling, Tesla shares fell by 1.4 percent in after-hours trading, reflecting investor sentiment regarding the ongoing uncertainty surrounding Musk’s compensation. Additionally, McCormick dismissed a request for billion in legal fees from the plaintiff’s counsel, awarding a reduced sum of 5 million instead.
Despite this setback, Tesla shareholders had previously shown overwhelming support in June for reinstating Musk’s pay package, illustrating a divide between the company’s board decisions and shareholder sentiment. Following the ruling, Tesla criticized the court’s decision as “wrong” and announced plans to appeal. In a post on social media platform X, the company articulated concerns that judicial interference could compromise shareholder rights, asserting that “judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners.”
For his part, Musk echoed similar sentiments on X, labeling the ruling as “corrupt” and suggesting that McCormick was an “activist posing as a judge.” His 2018 pay package, which tied his compensation to the achievement of certain corporate milestones rather than a fixed salary, was once valued at billion at the height of Tesla’s market capitalization in late 2021, a testament to the dramatic shifts in the company’s market performance.
As Tesla navigates this legal landscape, the implications of corporate governance and shareholder interests remain at the forefront of discussions regarding accountability in large corporations.
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