Yesterday a trial in Delaware Chancery Court commenced, raising a shareholder complaint   accusing directors (and in-house counsel) of breaching their duty by voting compensation to a company CEO that could equal $56 Billion over ten years.

Kudos to those readers who said to themselves, “Sounds like Elon Musk.”  That would be a rational conclusion based on Musk’s contribution to his companies, their success and value, and the sheer weight of the numbers, and I hasten to add that I express no implied negative judgment here.  The point of this post is: did this board violate its duty or bow to the weight of the CEO’s 22% ownership stake and, as a matter of corporate practice, what can be learned from this case?

Yes, it’s Elon and the car company (not the space company,  not Twitter…). The deal was cut in 2018.  Today, as I post, is the second day of a likely week-long trial, and if anyone can claim to be worth up to $5.6B a year it’s likely Musk. The deal is based on performance standards such as meeting operational milestones AND increasing market cap by $50Billion.  And the number includes the value of the Tesla shares which are one form of compensation (raising the equity stake of the CEO to 28% which dilutes other shareholders but, it’s not company cash).  I note that if the market cap increases by $50 Billion, shareholders are in fact diluted but the “pie” being divided will have increased enormously.

Nor can I tell from the reportage whether the board utilized independent outside comp consultants who expressed expert views as to the deal.  Boards today are very well advised to get guidance in support of their judgment whenever any issue rises to the “B” level.

Stay tuned….