WILMINGTON, Del. — In a Delaware courtroom Wednesday, Elon Musk defended his leadership of Tesla and said he expects to soon shift his focus from Twitter, the troubled social media firm that he now owns.
Musk, defending his Tesla pay, says he’ll shift focus from Twitter
Musk took the stand in a trial stemming from a Tesla shareholder lawsuit over his 2018 compensation package that turned out to be worth more than $50 billion and helped make him the world’s richest person. Plaintiff Richard Tornetta alleges the company erred in approving a pay package that dwarfs even those of other top tech executives, despite Musk splitting his time between Tesla and the several other companies he runs — including, most recently, Twitter.
Under questioning from the plaintiffs’ lawyer, Greg Varallo, Musk defended bringing Tesla engineers to Twitter to evaluate Twitter’s engineering staff ahead of mass layoffs at the social media site. He said their participation was “voluntary,” “after hours” and “a minor thing.” Pressed as to whether anyone on Tesla’s board had contacted Musk to suggest that it might be problematic to use a public company’s employees to help his other private company, Musk said he did not recall any such conversation.
The trial highlights Musk’s singular position as a top executive of five companies at once, and calls into question whether the unorthodox terms of his leadership at Tesla are in the best interests of the automaker’s shareholders, or of Musk himself. It’s the second time in two years Musk has testified in a trial stemming from a Tesla shareholder lawsuit. In a 2021 case that questioned his role in Tesla’s 2016 acquisition of his cousins’ solar panel company, SolarCity, Musk prevailed.
Tesla’s lawyers maintain that his Tesla compensation, which came largely in the form of Tesla stock and whose value was tied to the company’s performance, was necessary to retain and incentivize a CEO who has been critical to its ascent as the world’s most valuable automaker. If Tesla hadn’t done so well, Musk wouldn’t have made so much.
Musk, known lately for his provocative tweets and volatile behavior as Twitter’s new owner, strode into the Delaware Court of Chancery in a black suit and black tie Wednesday morning, apologizing that he might be a bit “slow,” having arrived on an overnight flight. On the stand, he kept a calm demeanor amid some verbal jousting with the plaintiffs’ lawyer over apparent inconsistencies in his testimony and the propriety of various past tweets.
After Musk testified on direct questioning from Tesla lawyer Evan Chesler that he hadn’t been involved in any meetings discussing the substance of his pay plan, Varallo presented documents that appeared to imply that Musk may have in fact played a role in devising it.
Musk also seemed to acknowledge that some of his tweets may have violated the terms of a consent agreement with the Securities and Exchange Commission. He defended them on the grounds that the agreement “was made under duress” and thus, in Musk’s opinion, “not valid.”
Musk in 2018 reached a settlement with the SEC that required both the billionaire and Tesla to pay fines and, ultimately, implement new controls and procedures to oversee his tweets. The settlement was reached after Musk tweeted that he had secured funding to take Tesla private at $420 a share, causing the company’s stock price to jump more than 6 percent. Musk has repeatedly criticized the settlement, and earlier this year, he asked a federal judge to throw out the agreement.
Varallo often appeared amused as he lightly sparred with Musk, in what was altogether a friendlier back-and-forth than the combative cross-examination in the SolarCity trial, when Musk called the opposing counsel “a bad human being.” When Musk argued that the SEC consent decree was invalid, Varallo countered that while Musk appeared to have a fair grasp of some legal concepts, he has not been admitted to the Delaware bar, and thus should confine his answers to the questions at hand rather than offering legal opinions.
On a couple of occasions, Musk objected to questions as “misleading” or too complex to answer with a yes or no. Varallo told Musk: “When your lawyer wants to make an objection, he has the right to do it. Sadly, you don’t.”
Musk’s initial testimony, under direct questioning, focused on the daunting situation Tesla was facing in 2017, when the pay package took effect, and what he described as the “extreme” unlikelihood that he would achieve the benchmarks required to earn as much as he did. At the time, the electric carmaker was behind schedule on production of the Model 3, its first mass-market vehicle.
Musk’s staggering compensation depended on Tesla hitting wildly ambitious targets for its market capitalization. He testified that when the plan was conceived, Tesla’s market value was about $40 billion. He would receive a large slice of Tesla stock, on the order of half a percent of the company, if that rose to $100 billion, and more for each additional $50 billion. In all, he acquired about 5 percent more of the company, on top of his previous Tesla stake of 22 percent.
As of Wednesday, Tesla was worth some $585 billion, making it one of the 10 most valuable companies in the world. Musk’s ballooning net worth helped to enable his bid for Twitter this year.
A key issue in the trial is whether the board acted with appropriate oversight and independence in crafting and approving the pay package, or whether Musk himself played an improper role in orchestrating it. Varallo repeatedly emphasized Musk’s unorthodox and at times unilateral actions during his time as Tesla chief, from changing his title from CEO to “Technoking” to sending a Tesla Roadster into space, where it has spent the past four years orbiting the sun.
A challenge for the plaintiffs, as in the SolarCity case, is that Tesla’s blockbuster stock performance has enriched its shareholders as well as Musk. But Tesla’s shares have dipped dramatically this year as Musk has leveraged his own Tesla stock to help finance his Twitter purchase.
Wednesday’s testimony also shed light on some aspects of Musk’s management style. For instance, he acknowledged that Tesla often misses its own targets, from revenue goals to publicly announced timetables for shipping vehicles. But he said that’s by design.
“It is good to have high aspirations,” Musk said, describing some of his projections as assuming that “pretty much everything goes right,” when in reality of course some things will go wrong.
Musk added, “I tend to bias toward the optimistic side.”
Musk’s testimony concluded shortly after noon, after which former Tesla board member Antonio Gracias was called to the stand.
Gracias asserted that Musk’s lavish, heavily performance-based incentive package was needed to keep him engaged and doing his best work for the company at a critical juncture in the production of the Model 3.
“We needed him putting in full intensity, including sleeping on the floor if necessary, to get this done,” Gracias said. He added that Musk has “a hundred company ideas in his mind,” and “we wanted him focused on Tesla.”
The plaintiffs are making the case in the trial that Musk wanted an astronomical pay package from Tesla to fund his plans for exploring and creating colonies on Mars. Musk acknowledged that’s a goal of his.
Gracias said in his testimony that Tesla’s board at one point considered hiring someone else to be CEO so that Musk could serve instead as chief product officer. But he said the board couldn’t find the right person for the job.
When Musk said he expected to complete his fundamental restructuring of Twitter by the end of this week, Varallo replied, “We’ve heard you’re terribly bad at predicting things,” referring to past public predictions by Musk as Tesla CEO that did not come true.
“Well,” Musk demurred, “my record varies.”
Cat Zakrzewski and Faiz Siddiqui contributed to this report.
Source: WP
