Investors are targeting Tesla over Musk's pay

Activist investors see an opportunity for reform. It is hoped that the board of directors will be changed.

Activist investors are feeling a new dawn after the latest ruling on Tesla CEO Elon Musk's pay and see an opportunity for reform. They are primarily concerned with changes to the board of directors, which is effectively responsible for keeping Musk in check.

“People will be looking to control what's going on,” said John Chevden, an independent activist investor. He wants to call for changes to Tesla's bylaws at the next general meeting so shareholders have a greater say.

Some investors have been upset by Musk's leadership style for years, and investors have repeatedly called for reforms. However, so far largely unsuccessful. Musk owns 12.9 percent of Tesla's voting shares and has many supporters among shareholders. In order to succeed against it, activist investors rely on the help of large funds such as BlackRock or Vanguard.

The boxes keep a low profile

But they have stood by Tesla's leadership several times in the past and, for example, voted to re-elect Robyn Delhomme to the board, even though others expressed doubts about her abilities as moderator. Other times they voted against individual directors. This year, Musk's brother Kimbal and former head of the 21st Century Fox media group, James Murdoch, are among the candidates for re-election, both of whom have very close ties to Elon Musk. BlackRock and Vanguard declined to comment.

But this time it may be different after a judge in Delaware invalidated Musk's $56 billion (about 52 billion euros) compensation package. In her ruling, Judge Kathleen McCormick of the Delaware Circuit Court spoke of the “unbelievable amount of the largest compensation plan ever.” Musk's package is the largest ever for a CEO. Neither the Compensation Committee nor Tesla management acted in the company's best interests when Musk's package was prepared. “In fact, there is little evidence that negotiations ever took place,” she said.

Musk's leadership style is abusive

“This ruling will certainly give reformers more leverage,” said Charles Elson, founder of the Weinberg Center for Corporate Governance at the University of Delaware. It's so far-reaching that even Tesla's largest shareholders could change their stance. The judge had asked the Tesla shareholder who filed the lawsuit to come up with a new payment proposal with his lawyer. It is unclear what this will look like and whether there will eventually be a shareholder vote. The ruling can also still be appealed to the Delaware Supreme Court. Musk and Tesla have not yet commented on whether they will do so.

The ruling is likely to galvanize critics of Musk's leadership style, regardless of which way Musk's pay ends up, said Andrew Poreda, an analyst at financial services firm Sage Advisory Service. “The judge’s decision should serve as a wake-up call that things have gotten out of control.” (APA/Reuters)