Business
Column: A judge voids Musk's huge Tesla pay package as dishonest, and hoo boy, is he steamed
Elon Musk may be learning the hard way that his streak of always having things his own way is coming to an end.
The most recent clue was delivered Tuesday by Delaware Chancellor Kathaleen McCormick, who ordered his groundbreaking $56-billion 2018 pay package from Tesla rescinded, dealing a potentially permanent blow to Musk’s reign as the world’s richest man.
If McCormick’s blockbuster 201-page order in the lawsuit brought by a Tesla shareholder survives a likely appeal to the Delaware Supreme Court, Musk would have to give up the options on nearly 304 million shares that the Tesla board awarded him in that 2018 pay deal.
Musk wielded the maximum influence that a manager can wield over a company.
— Delaware Chancellor Kathaleen McCormick
Of those options, 25.3 million are still unvested because their vesting dates haven’t yet been reached. Musk hasn’t yet exercised any of the options that have vested thus far; in McCormick’s view, that makes reversing the pay package a relatively simple matter.
Musk reacted to McCormick’s ruling with characteristic truculence. “Never incorporate your company in the state of Delaware,” he tweeted soon after the ruling was released.
He then tweeted a poll asking users if Tesla should change its state of incorporation to Texas, its headquarters state. By midday Wednesday, more than 87% of the nearly 1 million respondents voted “yes” (though respondents to Musk’s tweeted polls invariably see things his way).
In responding this way, Musk validated one of McCormick’s points — that his personal interests often have outweighed those of other Tesla shareholders in corporate decision-making. The truth is that most major corporations incorporate in Delaware because its laws and courts are extremely business-friendly.
Musk had encountered McCormick before, perhaps to his enduring regret. It was she who presided over the Chancery Court lawsuit brought by the Twitter board in 2022 to force him to complete his purchase of the social media platform after he attempted to back out.
With a trial of the lawsuit drawing near and McCormick signaling, if subtly, that she wasn’t going to be intimidated by Musk’s usual bluster, he completed the deal in October 2022.
Since then, he has sold tens of billions of dollars of his Tesla holdings to shore up the finances of Twitter (now X), even as he drives off advertisers and users through his open embrace on the platform of antisemitism and other varieties of hate speech.
That brings us to McCormick’s ruling on the pay deal. There’s a lot to find fascinating, even entertaining, in a text punctuated with quotations from Shakespeare and “Star Trek.”
The inner workings of corporate management can be opaque to laypersons, but McCormick lays out with admirable clarity how the deal came to pass and why it deserves to be reversed.
Along the way, she raises important questions about how a corporate board should deal with a “superstar CEO” like Musk, and how to strike the proper balance between the value a CEO has created for shareholders, and how much of that value should flow back to the CEO. Accomplished CEOs arguably deserve plenty in compensation; the issue is how much plenty is enough, or too much.
A brief outline of the 2018 pay deal is in order.
The Tesla board awarded Musk as much as 12% of Tesla shares over 10 years in 12 blocks, or tranches. Each tranche would vest with each increase in Tesla’s market value of $50 billion and with specified targets of revenue and operating earnings growth. Altogether, the deal was valued at up to $55.8 billion.
The plan’s magnitude was indescribable in conventional executive compensation terms. McCormick called it “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” It was 250 times larger than median pay packages in comparable corporations, and more than 33 times larger than the closest comparison — which was the previous pay package Tesla had awarded Musk, in 2012.
McCormick concluded, following a five-day trial in 2022, that Musk’s dominating role at Tesla warranted that the board conduct an especially stringent arms-length process to reach a pay settlement. This it did not do.
“Rather than negotiating against Musk,” she writes, the board’s compensation committee “engaged in a ‘cooperative [and] collaborative’ process antithetical to arm’s-length bargaining…. In the end, Musk dictated the Grant’s terms, and the committee effected those wishes.”
That could not have been a surprise, considering the makeup of the committee and the board as a whole. The chair of the committee, board member Ira Ehrenpreis, had invested tens of millions of dollars in Musk companies. He, Musk and Musk’s brother Kimbal (also a Tesla board member) had known one another for 15 years.
Another committee member, board member Antonio Gracias, had a Tesla stake that had grown from $15 million to about $1 billion during Musk’s tenure. His family and Musk’s regularly spent vacations together and his friendships extended to Kimbal and to Musk’s mother and sister.
Among the other board members were James Murdoch, the son of Rupert Murdoch and a personal friend of Musk’s, and Linda Johnson Rice, a personal friend of Gracias’.
The non-director Tesla executives assigned to help craft the pay package tended to see themselves as Musk acolytes or were otherwise “beholden to Musk,” as McCormick describes the atmosphere. One was Tesla general counsel Todd Maron, who was Musk’s former divorce attorney and whose “admiration for Musk moved him to tears” during a pretrial deposition.
At the board level, this was “as close to … a controlled mindset as it gets,” McCormick writes. But there’s more, pertaining to the question of whether Musk is truly a “controlling” person at Tesla.
As she observes, at the time of the pay negotiations he owned 21.9% of the company shares, mathematically not enough for voting control. But there are other considerations.
Musk was then Tesla’s chairman, CEO and effectively its founder. (Although the company had been founded by others, it was Musk who after buying into the company in 2004 imposed a vision and strategy that transformed Tesla from a small startup with a single electric vehicle in its product lineup to the leading EV manufacturer in the world, with 100,000 employees as of the end of 2021 and a market value of more than $1 trillion.)
At the time of the pay negotiations, Musk had personal ties to three of the eight active board members (his brother, Gracias and Murdoch). His public renown and record as chair and CEO encouraged the board to believe that Tesla’s very survival depended on keeping Musk on board and placated.
They granted him extraordinary authority without any significant supervision, allowing him to make hiring and firing decisions, approving all financial plans, and unilaterally reassigning Tesla employees to his other companies, such as when he personally sent about 50 Tesla engineers to Twitter to evaluate the latter’s engineering.
And in 2016, when his solar power company SolarCity was floundering, the Tesla board waved through a merger into Tesla that rescued the solar firm’s shareholders at the expense of Tesla’s. Musk sat on both firms’ boards, two of his cousins and Gracias were on the SolarCity board, and Gracias and Brad Buss, a former SolarCity executive, were on Tesla’s board. The merger appeared to be as far from an arm’s-length transaction as human arms could allow.
“Musk wielded the maximum influence that a manager can wield over a company,” McCormick judged.
The board allowed Musk to dominate the design of his pay package as he dominated all other aspects of Tesla management. The board seemed disinclined to use outside guidance in benchmarking Musk’s pay against that of CEOs at comparable companies.
Tesla argued at trial that the pay plan was so much larger than any other in corporate history that it would be impossible to find comparable executives or pay plans. McCormick isn’t having any of that.
“As CEO, Musk’s job was the same as every other public company CEO: improve earnings and create value…. The extraordinary nature of the Grant should have made benchmarking more critical, not less.” Without that fundamental data, the Tesla board had no idea just how extraordinary it was.
The death blow to the pay package, as McCormick lays it out, is that the Tesla board misled shareholders about its nature and the process that brought it into being.
In its proxy statement for its 2018 annual meeting at which shareholders would be asked to vote on the package, the company stated that all the members of the compensation committee were “independent directors.” That was obviously untrue, given that Ehrenpreis and Gracias held two of its four seats and Ehrenpreis was its chair.
McCormick also noted that the proxy described the milestones that Musk would have to meet to acquire his shares would be “very difficult to achieve.” In fact, the nearer-term milestones fell within the company’s internal financial projections.
Although the two large institutional proxy advisory firms, Glass Lewis and ISS, advised their clients to vote against the pay deal — ISS described its magnitude as “staggering” — 73% of shareholders approved the package at a special meeting.
Things haven’t gone as well for Musk and Tesla lately as they appeared in 2018. After topping $1 trillion, the company’s market capitalization is now less than $600 billion. Tesla faces headwinds from competition in the EV market from legacy automakers and a consumer shift away from full EVs toward hybrids; these factors have forced Tesla to cut prices sharply, eroding its profit margin. Its shares have lost about 25% so far this year and about 36% since their most recent peak last July.
Musk’s holdings of Tesla have fallen to about 13% from 21.9% in 2008, due largely to his sales of Tesla stock to finance his Twitter deal. If he is able to liquidate his entire 2018 stock grant, that would bring his holdings back to about 22.5%. He recently informed the Tesla board that unless his holdings can be raised to 25%, he would prefer building AI and robotics products, which he has said are in Tesla’s future, “outside of Tesla.”
The fundamental question McCormick poses is why the board thought such an outsized pay grant was necessary to keep Musk at Tesla and focused on its growth. He had repeatedly stated in public that he intended to stay at Tesla to the end of his days.
The board may have been concerned that his other companies, including SpaceX and Twitter, would distract him from his duties at Tesla, but they evidently made no effort to write into the pay package any requirement that he devote a given number of hours exclusively to Tesla.
After all, his 21.9% stake in Tesla should have been enough to give him a powerful incentive to stay in place and maximize the company’s fortunes — every $50-billion increase in Tesla’s market capitalization meant $10 billion more in his pocket.
Notwithstanding his recent threat to take his AI and robotics work elsewhere, wouldn’t he have stayed at Tesla in 2018 even if the board offered him less, or even nothing?
“Was the richest person in the world overpaid?” McCormick asks. That, she writes, is “the $55.8 billion question.”
Business
Commentary: A leading roboticist punctures the hype about self-driving cars, AI chatbots and humanoid robots
It may come to your attention that we are inundated with technological hype. Self-driving cars, human-like robots and AI chatbots all have been the subject of sometimes outlandishly exaggerated predictions and promises.
So we should be thankful for Rodney Brooks, an Australian-born technologist who has made it one of his missions in life to deflate the hyperbole about these and other supposedly world-changing technologies offered by promoters, marketers and true believers.
As I’ve written before, Brooks is nothing like a Luddite. Quite the contrary: He was a co-founder of IRobot, the maker of the Roomba robotic vacuum cleaner, though he stepped down as the company’s chief technology officer in 2008 and left its board in 2011. He’s a co-founder and chief technology officer of RobustAI, which makes robots for factories and warehouses, and former director of computer science and artificial intelligence labs at Massachusetts Institute of Technology.
Having ideas is easy. Turning them into reality is hard. Turning them into being deployed at scale is even harder.
— Rodney Brooks
In 2018, Brooks published a post of dated predictions about the course of major technologies and promised to revisit them annually for 32 years, when he would be 95. He focused on technologies that were then — and still are — the cynosures of public discussion, including self-driving cars, human space travel, AI bots and humanoid robots.
“Having ideas is easy,” he wrote in that introductory post. “Turning them into reality is hard. Turning them into being deployed at scale is even harder.”
Brooks slotted his predictions into three pigeonholes: NIML, for “not in my lifetime,” NET, for “no earlier than” some specified date, and “by some [specified] date.”
On Jan. 1 he published his eighth annual predictions scorecard. He found that over the years “my predictions held up pretty well, though overall I was a little too optimistic.”
For example in 2018 he predicted “a robot that can provide physical assistance to the elderly over multiple tasks [e.g., getting into and out of bed, washing, using the toilet, etc.]” wouldn’t appear earlier than 2028; as of New Year’s Day, he writes, “no general purpose solution is in sight.”
The first “permanent” human colony on Mars would come no earlier than 2036, he wrote then, which he now calls “way too optimistic.” He now envisions a human landing on Mars no earlier than 2040, and the settlement no earlier than 2050.
A robot that seems “as intelligent, as attentive, and as faithful, as a dog” — no earlier than 2048, he conjectured in 2018. “This is so much harder than most people imagine it to be,” he writes now. “Many think we are already there; I say we are not at all there.” His verdict on a robot that has “any real idea about its own existence, or the existence of humans in the way that a 6-year-old understands humans” — “Not in my lifetime.”
Brooks points out that one way high-tech promoters finesse their exaggerated promises is through subtle redefinition. That has been the case with “self-driving cars,” he writes. Originally the term referred to “any sort of car that could operate without a driver on board, and without a remote driver offering control inputs … where no person needed to drive, but simply communicated to the car where it should take them.”
Waymo, the largest purveyor of self-driven transport, says on its website that its robotaxis are “the embodiment of fully autonomous technology that is always in control from pickup to destination.” Passengers “can sit in the back seat, relax, and enjoy the ride with the Waymo Driver getting them to their destination safely.”
Brooks challenges this claim. One hole in the fabric of full autonomy, he observes, became clear Dec. 20, when a power blackout blanketing San Francisco stranded much of Waymo’s robotaxi fleet on the streets. Waymos, which can read traffic lights, clogged intersections because traffic lights went dark.
The company later acknowledged its vehicles occasionally “require a confirmation check” from humans when they encounter blacked-out traffic signals or other confounding situations. The Dec. 20 blackout, Waymo said, “created a concentrated spike in these requests,” resulting in “a backlog that, in some cases, led to response delays contributing to congestion on already-overwhelmed streets.”
It’s also known that Waymo pays humans to physically deal with vehicles immobilized by — for example — a passenger’s failure to fully close a car door when exiting. They can be summoned via the third-party app Honk, which chiefly is used by tow truck operators to find stranded customers.
“Current generation Waymos need a lot of human help to operate as they do, from people in the remote operations center to intervene and provide human advice for when something goes wrong, to Honk gig workers scampering around the city,” Brooks observes.
Waymo told me its claim of “fully autonomous” operation is based on the fact that the onboard technology is always in control of its vehicles. In confusing situations the car will call on Waymo’s “fleet response” team of humans, asking them to choose which of several optional paths is the best one. “Control of the vehicle is always with the Waymo Driver” — that is, the onboard technology, spokesman Mark Lewis told me. “A human cannot tele-operate a Waymo vehicle.”
As a pioneering robot designer, Brooks is particularly skeptical about the tech industry’s fascination with humanoid robots. He writes from experience: In 1998 he was building humanoid robots with his graduate students at MIT. Back then he asserted that people would be naturally comfortable with “robots with humanoid form that act like humans; the interface is hardwired in our brains,” and that “humans and robots can cooperate on tasks in close quarters in ways heretofore imaginable only in science fiction.”
Since then it has become clear that general-purpose robots that look and act like humans are chimerical. In fact in many contexts they’re dangerous. Among the unsolved problems in robot design is that no one has created a robot with “human-like dexterity,” he writes. Robotics companies promoting their designs haven’t shown that their proposed products have “multi-fingered dexterity where humans can and do grasp things that are unseen, and grasp and simultaneously manipulate multiple small objects with one hand.”
Two-legged robots have a tendency to fall over and “need human intervention to get back up,” like tortoises fallen on their backs. Because they’re heavy and unstable, they are “currently unsafe for humans to be close to when they are walking.”
(Brooks doesn’t mention this, but even in the 1960s the creators of “The Jetsons” understood that domestic robots wouldn’t rely on legs — their robot maid, Rosie, tooled around their household on wheels, a perception that came as second nature to animators 60 years ago but seems to have been forgotten by today’s engineers.)
As Brooks observes, “even children aged 3 or 4 can navigate around cluttered houses without damaging them. … By age 4 they can open doors with door handles and mechanisms they have never seen before, and safely close those doors behind them. They can do this when they enter a particular house for the first time. They can wander around and up and down and find their way.
“But wait, you say, ‘I’ve seen them dance and somersault, and even bounce off walls.’ Yes, you have seen humanoid robot theater. “
Brooks’ experience with artificial intelligence gives him important insights into the shortcomings of today’s crop of large language models — that’s the technology underlying contemporary chatbots — what they can and can’t do, and why.
“The underlying mechanism for Large Language Models does not answer questions directly,” he writes. “Instead, it gives something that sounds like an answer to the question. That is very different from saying something that is accurate. What they have learned is not facts about the world but instead a probability distribution of what word is most likely to come next given the question and the words so far produced in response. Thus the results of using them, uncaged, is lots and lots of confabulations that sound like real things, whether they are or not.”
The solution is not to “train” LLM bots with more and more data, in the hope that eventually they will have databases large enough to make their fabrications unnecessary. Brooks thinks this is the wrong approach. The better option is to purpose-build LLMs to fulfill specific needs in specific fields. Bots specialized for software coding, for instance, or hardware design.
“We need guardrails around LLMs to make them useful, and that is where there will be lot of action over the next 10 years,” he writes. “They cannot be simply released into the wild as they come straight from training. … More training doesn’t make things better necessarily. Boxing things in does.”
Brooks’ all-encompassing theme is that we tend to overestimate what new technologies can do and underestimate how long it takes for any new technology to scale up to usefulness. The hardest problems are almost always the last ones to be solved; people tend to think that new technologies will continue to develop at the speed that they did in their earliest stages.
That’s why the march to full self-driving cars has stalled. It’s one thing to equip cars with lane-change warnings or cruise control that can adjust to the presence of a slower car in front; the road to Level 5 autonomy as defined by the Society of Automotive Engineers — in which the vehicle can drive itself in all conditions without a human ever required to take the wheel — may be decades away at least. No Level 5 vehicles are in general use today.
Believing the claims of technology promoters that one or another nirvana is just around the corner is a mug’s game. “It always takes longer than you think,” Brooks wrote in his original prediction post. “It just does.”
Business
Versant launches, Comcast spins off E!, CNBC and MS NOW
Comcast has officially spun off its cable channels, including CNBC and MS NOW, into a separate company, Versant Media Group.
The transaction was completed late Friday. On Monday, Versant took a major tumble in its stock market debut — providing a key test of investors’ willingness to hold on to legacy cable channels.
The initial outlook wasn’t pretty, providing awkward moments for CNBC anchors reporting the story.
Versant fell 13% to $40.57 a share on its inaugural trading day. The stock opened Monday on Nasdaq at $45.17 per share.
Comcast opted to cast off the still-profitable cable channels, except for the perennially popular Bravo, as Wall Street has soured on the business, which has been contracting amid a consumer shift to streaming.
Versant’s market performance will be closely watched as Warner Bros. Discovery attempts to separate its cable channels, including CNN, TBS and Food Network, from Warner Bros. studios and HBO later this year. Warner Chief Executive David Zaslav’s plan, which is scheduled to take place in the summer, is being contested by the Ellison family’s Paramount, which has launched a hostile bid for all of Warner Bros. Discovery.
Warner Bros. Discovery has agreed to sell itself to Netflix in an $82.7-billion deal.
The market’s distaste for cable channels has been playing out in recent years. Paramount found itself on the auction block two years ago, in part because of the weight of its struggling cable channels, including Nickelodeon, Comedy Central and MTV.
Management of the New York-based Versant, including longtime NBCUniversal sports and television executive Mark Lazarus, has been bullish on the company’s balance sheet and its prospects for growth. Versant also includes USA Network, Golf Channel, Oxygen, E!, Syfy, Fandango, Rotten Tomatoes, GolfNow, GolfPass and SportsEngine.
“As a standalone company, we enter the market with the scale, strategy and leadership to grow and evolve our business model,” Lazarus, who is Versant’s chief executive, said Monday in a statement.
Through the spin-off, Comcast shareholders received one share of Versant Class A common stock or Versant Class B common stock for every 25 shares of Comcast Class A common stock or Comcast Class B common stock, respectively. The Versant shares were distributed after the close of Comcast trading Friday.
Comcast gained about 3% on Monday, trading around $28.50.
Comcast Chairman Brian Roberts holds 33% of Versant’s controlling shares.
Business
Ties between California and Venezuela go back more than a century with Chevron
As a stunned world processes the U.S. government’s sudden intervention in Venezuela — debating its legality, guessing who the ultimate winners and losers will be — a company founded in California with deep ties to the Golden State could be among the prime beneficiaries.
Venezuela has the largest proven oil reserves on the planet. Chevron, the international petroleum conglomerate with a massive refinery in El Segundo and headquartered, until recently, in San Ramon, is the only foreign oil company that has continued operating there through decades of revolution.
Other major oil companies, including ConocoPhillips and Exxon Mobil, pulled out of Venezuela in 2007 when then-President Hugo Chávez required them to surrender majority ownership of their operations to the country’s state-controlled oil company, PDVSA.
But Chevron remained, playing the “long game,” according to industry analysts, hoping to someday resume reaping big profits from the investments the company started making there almost a century ago.
Looks like that bet might finally pay off.
In his news conference Saturday, after U.S. Special Forces snatched Venezuelan President Nicolás Maduro and his wife in Caracas and extradited them to face drug-trafficking charges in New York, President Trump said the U.S. would “run” Venezuela and open more of its massive oil reserves to American corporations.
“We’re going to have our very large U.S. oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country,” Trump said during a news conference Saturday.
While oil industry analysts temper expectations by warning it could take years to start extracting significant profits given Venezuela’s long-neglected, dilapidated infrastructure, and everyday Venezuelans worry about the proceeds flowing out of the country and into the pockets of U.S. investors, there’s one group who could be forgiven for jumping with unreserved joy: Chevron insiders who championed the decision to remain in Venezuela all these years.
But the company’s official response to the stunning turn of events has been poker-faced.
“Chevron remains focused on the safety and well-being of our employees, as well as the integrity of our assets,” spokesman Bill Turenne emailed The Times on Sunday, the same statement the company sent to news outlets all weekend. “We continue to operate in full compliance with all relevant laws and regulations.”
Turenne did not respond to questions about the possible financial rewards for the company stemming from this weekend’s U.S. military action.
Chevron, which is a direct descendant of a small oil company founded in Southern California in the 1870s, has grown into a $300-billion global corporation. It was headquartered in San Ramon, just outside of San Francisco, until executives announced in August 2024 that they were fleeing high-cost California for Houston.
Texas’ relatively low taxes and light regulation have been a beacon for many California companies, and most of Chevron’s competitors are based there.
Chevron began exploring in Venezuela in the early 1920s, according to the company’s website, and ramped up operations after discovering the massive Boscan oil field in the 1940s. Over the decades, it grew into Venezuela’s largest foreign investor.
The company held on over the decades as Venezuela’s government moved steadily to the left; it began to nationalize the oil industry by creating a state-owned petroleum company in 1976, and then demanded majority ownership of foreign oil assets in 2007, under then-President Hugo Chávez.
Venezuela has the world’s largest proven crude oil reserves — meaning they’re economical to tap — about 303 billion barrels, according to the U.S. Energy Information Administration.
But even with those massive reserves, Venezuela has been producing less than 1% of the world’s crude oil supply. Production has steadily declined from the 3.5 million barrels per day pumped in 1999 to just over 1 million barrels per day now.
Currently, Chevron’s operations in Venezuela employ about 3,000 people and produce between 250,000 and 300,000 barrels of oil per day, according to published reports.
That’s less than 10% of the roughly 3 million barrels the company produces from holdings scattered across the globe, from the Gulf of Mexico to Kazakhstan and Australia.
But some analysts are optimistic that Venezuela could double or triple its current output relatively quickly — which could lead to a windfall for Chevron.
The Associated Press contributed to this report.
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