After months of fighting over the compensation package promised to Elon Musk six years ago — which included stock grants now worth about $56 billion — things are finally coming to a head.
Tesla holds its annual meeting on Thursday where shareholders are scheduled to vote on whether to reapprove a compensation agreement that a Delaware judge invalidated in January. The outcome could change Mr. Musk's relationship with Tesla, and it's a risk Tesla executives are not willing to take.
“If Tesla wants to retain Elon's attention and motivate him to continue to devote his time, energy, ambition and vision to delivering comparable results, we must honor our contract,” company Chairman Robin Denholm said in a letter to investors on Wednesday.
Regardless of the outcome of the vote, further litigation and other disputes are likely to follow, some of which may test the corporate legal system. Here's a guide to how different scenarios could play out.
Tesla could use shareholder approval to challenge Musk's compensation in court. If the company wins the vote on Musk's pay, it will likely appeal to Delaware Chancery Court Judge Katherine McCormick, who struck down the compensation plan, and argue that, as she told him, shareholders reapproved the proposal with information they didn't have when they approved the plan, which the company is likely to argue makes the issue moot.
If McCormick declares the plan acceptable, plaintiffs who originally sued over the plan are likely to appeal to the Delaware Supreme Court, arguing that the new vote doesn't resolve an issue the judge already decided and that shareholder votes may have been influenced by an implicit threat to Tesla's future if the vote doesn't go Musk's way.
If shareholders reject the compensation package, it could lead to a new contract or even litigation. The company will likely continue to try in Chancery Court to reinstate the 2018 agreement. But Tesla said in a filing on Monday that if that plan is not ultimately approved, the company may need to negotiate an alternative compensation plan with Musk to “incentivize him to devote his time and energy to Tesla.” It added that “any new plan would have to be comparable in size to the 2018 plan for Mr. Musk to agree to it.”
“This is a 'take the ball home' kind of thing,” Robert W. Baird analyst Ben Calo told DealBook.
Because Tesla's stock price has risen significantly since 2018, creating a replacement plan may ultimately be more costly than reviving the old plan. Tesla incurred accounting charges of $2.3 billion for its original plan. The company estimates that offering a functionally equivalent plan today would require accounting charges of more than $25 billion.
Another possible outcome if this matter doesn't go Musk's way is that he could try a novel legal tactic of suing to demand payment anyway, since he essentially signed a contract to receive the money.
A proposal for Tesla to reincorporate in Texas also goes on a vote Thursday. If the company wins the vote and moves to Texas, it will continue its efforts to reinstate the compensation plan in Delaware Chancery Court, raising concerns from Musk's critics that Tesla could use the courts at its new headquarters to attack its old one.
Anne Lipton, a business law professor at Tulane University, said it would be highly unusual and aggressive for one state's judiciary to allow such an attack on another state's judiciary. Still, McCormick said it's up to Tesla's Delaware lawyers to tell them if Tesla decides to weaponize the Texas courts. It's unclear what McCormick would do if that were to happen.
Will the proposal pass? Some background to consider:
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Compensation proposals require a majority vote at the general meeting to pass, while restructuring issues require an even tougher threshold of a majority of Tesla's outstanding shares.
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Individual investors make up 44% of Tesla's shareholder base, more than any other company in the S&P 500 index, according to S&P Global Market Intelligence. In Tesla's case, individual investors are more likely to vote the way Musk wants, but it has traditionally been hard to get small shareholders to vote.
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Two leading shareholder advisory firms, Institutional Shareholder Services and Glass Lewis, urged investors to reject the compensation plan but tentatively supported the proposed restructuring. Advice from these so-called proxy advisers traditionally carries significant influence over institutional investors.
Conclusion: “A new vote would just add complexity, not eliminate it,” Lipton said. And that uncertainty isn't good for Tesla. “Whether it's real or not, I think it's going to weigh on investor sentiment,” Calo said. Michael de la Merced
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Business in the heat
The first of what is expected to be an unusually hot summer this year was hit by a heat wave this week in the western U.S., sending temperatures to record highs in cities including Phoenix and Las Vegas. As heatwaves become more frequent and longer lasting, business leaders are starting to notice the impact on their operations.
According to data platform AlphaSense, mentions of “excessive heat,” “extreme heat,” and “heat waves” have peaked during third-quarter earnings announcements in recent years.
From Disney to Walmart, companies are taking note of the impacts of extreme heat. Here are some recent examples:
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“We estimate that the poor weather conditions reduced attendance by more than one million people for the year,” said Gary Mick, the company's chief financial officer. Six Flags Entertainment“This includes rain and snow in California over spring break, followed by record summer heat in Texas, and an eighth straight week of rain or threat of rain in the Mid-Atlantic and Northeast after Labor Day,” he said during a February conference call.
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CFO Constellation EnergyDuring a November conference call, Daniel Eggers said the extreme heat in Texas caused the state's power grid operator to “set 10 new peak demand records over the summer.”
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Chief Executive Officer Ronald Coughlin said: Petco “The extreme heat helped revitalize our flea and tick control business, with prescription sales up nearly 20 percent compared to last year,” the company said in August at the time.
Heat waves have a huge impact on the economy. A 2022 study published in Science Advances examining the impacts of man-made heat waves from 1992 to 2013 estimated that they cost the global economy between $5 trillion and $29.3 trillion. These losses are likely to increase over time.
The first CEO of Barstool Sports explains the secret to its success
When Erica Ayers Badan became CEO of Barstool Sports in 2016, the company was valued at around $12 million. Seven years after she left, gambling company Penn Entertainment acquired the often-controversial blog, podcast and video series for $551 million. (Barstool founder Dave Portnoy resurrected the company soon after.)
It was a big risk to take a job at an unproven media company alongside Portnoy, who The Times wrote in 2022 had “earned a reputation for using misogyny and other offensive behavior,” and to become the company's first female employee. In her upcoming book, “Nobody Cares About Your Career,” Ayers Badan makes the case for taking that gamble, along with career advice. She spoke with Dealbook's Sarah Kessler about why companies need perspective and what it's like to lead a company that was ostensibly for men. The interview has been condensed and edited.
You write, ‘Women have two ways of changing the situation: by being pure but advocating from the outside’ or by ‘pushing from the inside.’ How has that worked for you?
One of the things I was super sensitive about when I joined Barstool was the impression that I was sabotaging my career by going to an all-male company, and I was proof that I picked the right job, and I was able to come out of it with some really amazingly talented people and do great things.
This is progress for women as well as women making progress outside of typically male-dominated environments. Both are really important.
Women are still TiltThat means recognizing all the prejudices against us and trying to adjust our behavior accordingly?
We are less perfect than the women who came before us, and they are less perfect than the women before them, and I think that's so exciting.
But you don't have to play it a certain way, and I think I'm good evidence of that myself.
Barstool's success was partly due to its bad behavior, but its reputation also closed off some business opportunities. The ESPN show was canceled after one episode.Is the trade-off worth it?
For better or worse, we live in the age of influence. To be influential, you have to be vocal and have your point of view. You have to get people's attention. Over time, all media will be like that. Media is more fragmented, and people have to find ways to go viral. The gatekeepers are largely gone. You can't afford not to have a say. The entire media ecosystem has changed. And for me, that tradeoff has been infinitely worth it.
I feel like most management really doesn't want to speak up about an issue or say anything that might cause backlash.
Some people are opting out entirely. It's unclear how long that will last, but if the product itself is compelling, it will work.
Thanks for reading! See you on Monday.
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