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by Delaware Chancellor Kathaleen McCormick, who ordered his groundbreaking $56-billion 2018 pay package from Tesla rescinded, dealing a potentially permanent blow to Musk’s reign as the world’s richest man.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: The Pentagon is demanding to use Claude AI as it pleases. Claude told me that’s ‘dangerous’
Recently, I asked Claude, an artificial-intelligence thingy at the center of a standoff with the Pentagon, if it could be dangerous in the wrong hands.
Say, for example, hands that wanted to put a tight net of surveillance around every American citizen, monitoring our lives in real time to ensure our compliance with government.
“Yes. Honestly, yes,” Claude replied. “I can process and synthesize enormous amounts of information very quickly. That’s great for research. But hooked into surveillance infrastructure, that same capability could be used to monitor, profile and flag people at a scale no human analyst could match. The danger isn’t that I’d want to do that — it’s that I’d be good at it.”
That danger is also imminent.
Claude’s maker, the Silicon Valley company Anthropic, is in a showdown over ethics with the Pentagon. Specifically, Anthropic has said it does not want Claude to be used for either domestic surveillance of Americans, or to handle deadly military operations, such as drone attacks, without human supervision.
Those are two red lines that seem rather reasonable, even to Claude.
However, the Pentagon — specifically Pete Hegseth, our secretary of Defense who prefers the made-up title of secretary of war — has given Anthropic until Friday evening to back off of that position, and allow the military to use Claude for any “lawful” purpose it sees fit.
Defense Secretary Pete Hegseth, center, arrives for the State of the Union address in the House Chamber of the U.S. Capitol on Tuesday.
(Tom Williams / CQ-Roll Call Inc. via Getty Images)
The or-else attached to this ultimatum is big. The U.S. government is threatening not just to cut its contract with Anthropic, but to perhaps use a wartime law to force the company to comply or use another legal avenue to prevent any company that does business with the government from also doing business with Anthropic. That might not be a death sentence, but it’s pretty crippling.
Other AI companies, such as white rights’ advocate Elon Musk’s Grok, have already agreed to the Pentagon’s do-as-you-please proposal. The problem is, Claude is the only AI currently cleared for such high-level work. The whole fiasco came to light after our recent raid in Venezuela, when Anthropic reportedly inquired after the fact if another Silicon Valley company involved in the operation, Palantir, had used Claude. It had.
Palantir is known, among other things, for its surveillance technologies and growing association with Immigration and Customs Enforcement. It’s also at the center of an effort by the Trump administration to share government data across departments about individual citizens, effectively breaking down privacy and security barriers that have existed for decades. The company’s founder, the right-wing political heavyweight Peter Thiel, often gives lectures about the Antichrist and is credited with helping JD Vance wiggle into his vice presidential role.
Anthropic’s co-founder, Dario Amodei, could be considered the anti-Thiel. He began Anthropic because he believed that artificial intelligence could be just as dangerous as it could be powerful if we aren’t careful, and wanted a company that would prioritize the careful part.
Again, seems like common sense, but Amodei and Anthropic are the outliers in an industry that has long argued that nearly all safety regulations hamper American efforts to be fastest and best at artificial intelligence (although even they have conceded some to this pressure).
Not long ago, Amodei wrote an essay in which he agreed that AI was beneficial and necessary for democracies, but “we cannot ignore the potential for abuse of these technologies by democratic governments themselves.”
He warned that a few bad actors could have the ability to circumvent safeguards, maybe even laws, which are already eroding in some democracies — not that I’m naming any here.
“We should arm democracies with AI,” he said. “But we should do so carefully and within limits: they are the immune system we need to fight autocracies, but like the immune system, there is some risk of them turning on us and becoming a threat themselves.”
For example, while the 4th Amendment technically bars the government from mass surveillance, it was written before Claude was even imagined in science fiction. Amodei warns that an AI tool like Claude could “conduct massively scaled recordings of all public conversations.” This could be fair game territory for legally recording because law has not kept pace with technology.
Emil Michael, the undersecretary of war, wrote on X Thursday that he agreed mass surveillance was unlawful, and the Department of Defense “would never do it.” But also, “We won’t have any BigTech company decide Americans’ civil liberties.”
Kind of a weird statement, since Amodei is basically on the side of protecting civil rights, which means the Department of Defense is arguing it’s bad for private people and entities to do that? And also, isn’t the Department of Homeland Security already creating some secretive database of immigration protesters? So maybe the worry isn’t that exaggerated?
Help, Claude! Make it make sense.
If that Orwellian logic isn’t alarming enough, I also asked Claude about the other red line Anthropic holds — the possibility of allowing it to run deadly operations without human oversight.
Claude pointed out something chilling. It’s not that it would go rogue, it’s that it would be too efficient and fast.
“If the instructions are ‘identify and target’ and there’s no human checkpoint, the speed and scale at which that could operate is genuinely frightening,” Claude informed me.
Just to top that with a cherry, a recent study found that in war games, AI’s escalated to nuclear options 95% of the time.
I pointed out to Claude that these military decisions are usually made with loyalty to America as the highest priority. Could Claude be trusted to feel that loyalty, the patriotism and purpose, that our human soldiers are guided by?
“I don’t have that,” Claude said, pointing out that it wasn’t “born” in the U.S., doesn’t have a “life” here and doesn’t “have people I love there.” So an American life has no greater value than “a civilian life on the other side of a conflict.”
OK then.
“A country entrusting lethal decisions to a system that doesn’t share its loyalties is taking a profound risk, even if that system is trying to be principled,” Claude added. “The loyalty, accountability and shared identity that humans bring to those decisions is part of what makes them legitimate within a society. I can’t provide that legitimacy. I’m not sure any AI can.”
You know who can provide that legitimacy? Our elected leaders.
It is ludicrous that Amodei and Anthropic are in this position, a complete abdication on the part of our legislative bodies to create rules and regulations that are clearly and urgently needed.
Of course corporations shouldn’t be making the rules of war. But neither should Hegseth. Thursday, Amodei doubled down on his objections, saying that while the company continues to negotiate and wants to work with the Pentagon, “we cannot in good conscience accede to their request.”
Thank goodness Anthropic has the courage and foresight to raise the issue and hold its ground — without its pushback, these capabilities would have been handed to the government with barely a ripple in our conscientiousness and virtually no oversight.
Every senator, every House member, every presidential candidate should be screaming for AI regulation right now, pledging to get it done without regard to party, and demanding the Department of Defense back off its ridiculous threat while the issue is hashed out.
Because when the machine tells us it’s dangerous to trust it, we should believe it.
Business
Why companies are making this change to their office space to cater to influencers
For the trendiest tenants in Hollywood office buildings, it’s the latest fad that goes way beyond designer furniture and art: mini studios
To capitalize on the never-ending flow of stars and influencers who come through Los Angeles, a growing number of companies are building bright little corners for content creators to try products and shoot short videos. Athletic apparel maker Puma, Kim Kardashian’s Skims and cheeky cosmetics retailer e.l.f. have spaces specifically designed to give people a place to experience and broadcast about their brands.
Hollywood, which hasn’t historically been home to apparel companies, is now attracting the offices of fashion retailers, says CIM Group, one of the neighborhood’s largest commercial property landlords.
“When we’re touring a space, one of the first items they bring up is, ‘Where can I build a studio?’” said Blake Eckert, who leases CIM offices in L.A.
Their studio offices also serve as marketing centers, with showrooms and meeting spaces where brands can host proprietary events not open to the public.
“For companies where brand visibility is really important, there is a trend of creating spaces that don’t just function as offices,” said real estate broker Nicole Mihalka of CBRE, who puts together entertainment property leases and sales.
Puma’s global entertainment marketing team is based in its new Hollywood offices, which works with such musical celebrity partners as Rihanna, ASAP Rocky, Dua Lipa, Skepta and Rosé, said Allyssa Rapp, head of Puma Studio L.A.
Allyssa Rapp, director of entertainment marketing at Puma, is shown in the Puma Studio L.A. The company keeps a closet full of Puma products on hand to give VIP guests. Visits to the studio sanctum are by invitation only, though.
(Kayla Bartkowski / Los Angeles Times)
Hollywood is a central location, she said, for meeting with celebrities, stylists and outside designers, most of whom are based in Los Angeles.
The office is a “creation hub,” she said, where influencers can record Puma’s design prototyping lab supported by libraries of materials and equipment used to create Puma apparel. The company, founded in 1948, is known for its emblematic sneakers such as the Speedcat and its lunging feline logo, and makes athletic wear, accessories and equipment.
Puma’s entertainment marketing team also occupies the office and sometimes uses it for exclusive events.
“We use the space as a showroom, as a social space that transforms from a traditional workplace into more of an experiential space,” Rapp said.
Nontraditional uses include content creation, sit-down dinners, product launches, album listening parties and workshops.
“Inviting people into our space and being able to give them high-touch brand experiences is something tangible and important for them,” she said. “The cultural layer is really important for us.”
The company keeps a closet full of Puma products on hand to give VIP guests. Visits to the studio sanctum are by invitation only, though. There’s no retail portal to the exclusive Hollywood offices.
Puma shoes are on display in the Puma Studio L.A.
(Kayla Bartkowski / Los Angeles Times)
Puma is also positioning its L.A studio as a connection point for major upcoming sporting events coming to Los Angeles, including the World Cup this summer, the 2027 Super Bowl and 2028 Olympics.
In-office studios don’t need to be big to be impactful, Mihalka said. “These are smaller stages, closer to green screen than a massive soundstage.”
Social media is the key driver of content created by most businesses, which may set up small booth-like stages where influencers can hawk hot products while offering discounts to people watching them perform.
Bigger, elevated stages can accommodate multiple performers for extended discussions in front of small audiences, with towering screens behind them to set the mood or illustrate products.
Among the tricked-out offices, she said, is Skims. The company, which is valued at $5 billion, is based in a glass-and-steel office building near the fabled intersection of Hollywood Boulevard and Vine Street.
The fashion retailer declined to comment on the studio uses in its headquarters, but according to architecture firm Odaa, it has open and private offices, meeting rooms, collaboration zones, photo studios, sample libraries, prototype showrooms, an executive lounge and a commissary for 400 people.
Pieces of a shoe sit on a workbench in the Puma Studio L.A.
(Kayla Bartkowski / Los Angeles Times)
The brands building studios typically want to find the darkest spot on the premises to put their content creation or podcast spaces, Eckert said, where they can limit outside light and sound. That’s commonly near the center of the office floor, far from windows and close to permanent shear walls that limit sound intrusion.
They also need space for green rooms and restrooms dedicated to the talent.
Spotify recently built a fancy podcast studio in a CIM office building on trendy Sycamore Avenue that is open by invitation-only to video creators in Spotify’s partner program.
“Ambitious shows need spaces that support big ideas,” Bill Simmons, head of talk strategy at Spotify, said in a statement. “These studios give teams room to experiment and keep pushing what’s possible.”
Business
A new delivery bot is coming to L.A., built stronger to survive in these streets
The rolling robots that deliver groceries and hot meals across Los Angeles are getting an upgrade.
Coco Robotics, a UCLA-born startup that’s deployed more than 1,000 bots across the country, unveiled its next-generation machines on Thursday.
The new robots are bigger, tougher and better equipped for autonomy than their predecessors. The company will use them to expand into new markets and increase its presence in Los Angeles, where it makes deliveries through a partnership with DoorDash.
Dubbed Coco 2, the next-gen bots have upgraded cameras and front-facing lidar, a laser-based sensor used in self-driving cars. They will use hardware built by Nvidia, the Santa Clara-based artificial intelligence chip giant.
Coco co-founder and chief executive Zach Rash said Coco 2 will be able to make deliveries even in conditions unsafe for human drivers. The robot is fully submersible in case of flooding and is compatible with special snow tires.
Zach Rash, co-founder and CEO of Coco, opens the top of the new Coco 2 (Next-Gen) at the Coco Robotics headquarters in Venice.
(Kayla Bartkowski/Los Angeles Times)
Early this month, a cute Coco was recorded struggling through flooded roads in L.A.
“She’s doing her best!” said the person recording the video. “She is doing her best, you guys.”
Instagram followers cheered the bot on, with one posting, “Go coco, go,” and others calling for someone to help the robot.
“We want it to have a lot more reliability in the most extreme conditions where it’s either unsafe or uncomfortable for human drivers to be on the road,” Rash said. “Those are the exact times where everyone wants to order.”
The company will ramp up mass production of Coco 2 this summer, Rash said, aiming to produce 1,000 bots each month.
The design is sleek and simple, with a pink-and-white ombré paint job, the company’s name printed in lowercase, and a keypad for loading and unloading the cargo area. The robots have four wheels and a bigger internal compartment for carrying food and goods .
Many of the bots will be used for expansion into new markets across Europe and Asia, but they will also hit the streets in Los Angeles and operate alongside the older Coco bots.
Coco has about 300 bots in Los Angeles already, serving customers from Santa Monica and Venice to Westwood, Mid-City, West Hollywood, Hollywood, Echo Park, Silver Lake, downtown, Koreatown and the USC area.
The new Coco 2 (Next-Gen) drives along the sidewalk at the Coco Robotics headquarters in Venice.
(Kayla Bartkowski/Los Angeles Times)
The company is in discussion with officials in Culver City, Long Beach and Pasadena about bringing autonomous delivery to those communities.
There’s also been demand for the bots in Studio City, Burbank and the San Fernando Valley, according to Rash.
“A lot of the markets that we go into have been telling us they can’t hire enough people to do the deliveries and to continue to grow at the pace that customers want,” Rash said. “There’s quite a lot of area in Los Angeles that we can still cover.”
The bots already operate in Chicago, Miami and Helsinki, Finland. Last month, they arrived in Jersey City, N.J.
Late last year, Coco announced a partnership with DashMart, DoorDash’s delivery-only online store. The partnership allows Coco bots to deliver fresh groceries, electronics and household essentials as well as hot prepared meals.
With the release of Coco 2, the company is eyeing faster deliveries using bike lanes and road shoulders as opposed to just sidewalks, in cities where it’s safe to do so. Coco 2 can adapt more quickly to new environments and physical obstacles, the company said.
Zach Rash, co-founder and CEO of Coco.
(Kayla Bartkowski/Los Angeles Times)
Coco 2 is designed to operate autonomously, but there will still be human oversight in case the robot runs into trouble, Rash said. Damaged sidewalks or unexpected construction can stop a bot in its tracks.
The need for human supervision has created a new field of jobs for Angelenos.
Though there have been reports of pedestrians bullying the robots by knocking them over or blocking their path, Rash said the community response has been overall positive. The bots are meant to inspire affection.
“One of the design principles on the color and the name and a lot of the branding was to feel warm and friendly to people,” Rash said.
Coco plans to add thousands of bots to its fleet this year. The delivery service got its start as a dorm room project in 2020, when Rash was a student at UCLA. He co-founded the company with fellow student Brad Squicciarini.
The Santa Monica-based company has completed more than 500,000 zero-emission deliveries and its bots have collectively traveled around 1 million miles.
Coco chooses neighborhoods to deploy its bots based on density, prioritizing areas with restaurants clustered together and short delivery distances as well as places where parking is difficult.
The robots can relieve congestion by taking cars and motorbikes off the roads. Rash said there is so much demand for delivery services that the company’s bots are not taking jobs from human drivers.
Instead, Coco can fill gaps in the delivery market while saving merchants money and improving the safety of city streets.
“This vehicle is inherently a lot safer for communities than a car,” Rash said. “We believe our vehicles can operate the highest quality of service and we can do it at the lowest price point.”
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