A Delaware judge’s decision to void Tesla Inc. TSLA CEO Elon Musk‘s $56 billion compensation package for a second time has ignited strong criticism from prominent technology leaders and investors, highlighting growing concerns about Delaware’s corporate governance framework.
What Happened: Cathie Wood, CEO of Ark Invest, condemned Delaware Chancery Court Judge Kathaleen McCormick‘s ruling, calling her an “activist judge” and arguing that shareholders’ voting rights were being undermined. The package had received overwhelming shareholder approval twice, most recently with 77% support in June 2023.
“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders,” Tesla’s official account posted on X, formerly Twitter, announcing plans to appeal the decision.
The controversial ruling also drew criticism from influential tech figures. Y Combinator co-founder Paul Graham suggested this could end Delaware’s status as the default incorporation state for startups, while Sequoia partner Shaun Maguire highlighted the $345 million in attorney fees awarded to the plaintiffs’ lawyers, contrasting it with the blocked compensation package.
Future Fund LLC Managing Partner Gary Black expressed confidence in Tesla’s grounds for appeal, citing the two shareholder votes supporting Musk’s compensation plan. “The DE Supreme Court has a reputation for being moderate and pragmatic,” Black noted, suggesting limited market impact due to the expected nature of the decision.
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Why It Matters: McCormick’s ruling cited “fatal flaws” in Tesla’s defense, including issues with post-trial evidence and proxy statement misstatements. The judge maintained that the board was influenced by Musk when adopting the original 2018 plan, which included ambitious milestones that Tesla ultimately achieved.
The compensation package, the largest ever for a U.S. corporate executive, would be worth over $100 billion at current share prices. While Musk remains the world’s richest person with an estimated net worth of $343 billion, the ongoing legal battle creates uncertainty for Tesla investors and raises broader questions about shareholder rights versus judicial oversight in corporate governance.
Price Action: Tesla’s stock closed at $357.09 on Monday, gaining 3.46% for the day. In after-hours trading, the stock dipped 1.23%. Year-to-date, Tesla shares have surged 43.74%, according to data from Benzinga Pro.
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