After months of fighting over a salary package promised to Elon Musk six years ago – which included stock grants now worth around $56 billion – things are finally coming to a head.
At Tesla’s annual meeting on Thursday, shareholders are expected to vote on whether to reapprove the compensation agreement after a Delaware judge voided it in January. The result could change Musk’s relationship with the company, and Tesla employees are not at risk.
“If Tesla wants to retain Elon’s attention and motivate him to continue to dedicate his time, energy, ambition and vision to delivering comparable results in the future, we must maintain our agreement,” Robyn Denholm, the company’s president, wrote to investors on Wednesday.
Regardless of the outcome of the vote, new lawsuits and other battles could emerge, some of which could test the corporate legal system. Here’s our guide on how different situations can play out.
Tesla could use shareholder approval to defend Musk’s payment in court. If it wins the vote on Musk’s compensation, the company will likely turn to Chancellor Kathaleen McCormick, the Delaware Court of Chancery judge who rejected the compensation scheme, and argue that shareholders – armed with information she said they didn’t have when they approved the package – they ratified the proposal again. This, the company is expected to say, makes the matter moot.
If McCormick declares the plan acceptable, the plaintiffs who initially sued him will likely appeal to the Delaware Supreme Court. Among his potential arguments: the new vote does not resolve an issue that has already been decided by a judge, and shareholder votes may have been influenced by implicit threats to Tesla’s future if the vote did not go Musk’s way.
Rejection of the salary package by shareholders could result in a new agreement – or legal action. The company would likely continue its efforts in the Court of Chancery to reinstate the 2018 agreement. But Tesla said in a filing Monday that if that plan is not ratified, the automaker may need to negotiate a replacement compensation plan with Musk “to motivate him to dedicate his time and energy to Tesla.” He added that “for Musk to agree to this, any new plan would need to be of similar magnitude to the 2018 plan.”
As Robert W. Baird analyst Ben Kallo told DealBook, “It’s a ‘take my ball and go home’ kind of thing.”
Since Tesla’s stock value has increased significantly since 2018, creating a replacement plan could ultimately be more expensive than reinstating the old one. Tesla took on accounting charges of $2.3 billion under the original plan. The company estimated it would need more than $25 billion in accounting expenses to deliver a functionally equivalent plan today.
Another potential outcome if the matter doesn’t go Musk’s way: he could try a new legal tactic, suing to demand he be paid anyway, since he essentially had a contract to receive that money.
Tesla’s proposal to reincorporate in Texas will also be voted on on Thursday. If the company wins the vote and moves to Texas, it will continue its efforts in the Delaware Court of Chancery to reinstate the compensation package. In this case, Musk’s critics fear that Tesla could use the courts in its new home to attack its old one.
It would be highly unusual and aggressive for one state’s judiciary to allow such an attack on another state’s judiciary, said Ann Lipton, a business law professor at Tulane University. That said, McCormick has placed the onus on Tesla’s Delaware lawyers to inform her if the company decides to weaponize Texas courts. It’s unclear what she would do if that happened.
Will the proposals be approved? Some context to consider:
The compensation proposal requires a majority of votes cast at the meeting to be approved. The reincorporation issue requires a stricter standard: a majority of Tesla’s outstanding shares.
Tesla has a higher percentage of retail investors in its shareholder base – 44%, according to S&P Global Market Intelligence – than any other company in the S&P 500. In Tesla’s case, they are more likely to vote like Musk wants, but it has traditionally been a challenge to get small shareholders to vote.
Two influential shareholder advisory firms, Institutional Shareholder Services and Glass Lewis, urged investors to reject the compensation plan but tentatively supported the reincorporation proposal. The boards of these so-called proxy advisors have traditionally exerted significant influence over institutional shareholders.
The end result: “The new vote only adds complexity; it doesn’t remove it,” Lipton said. And that uncertainty doesn’t help Tesla: “I think it weighs on investor sentiment,” Kallo said, “whether that’s reality or not. —Michael de la Merced
IF YOU MISSED IT
The United States added many more jobs last month than expected. The May jobs report showed that 272,000 jobs were created, well above what economists expected. The surprisingly strong performance pushed back market expectations that the Federal Reserve will cut rates in September.
GameStop shares plummeted after the retailer announced a share sale. Meme stocks closed nearly 40% lower yesterday, even though Keith Gill, an investor known as @roaringkitty on social media, held a livestream event on YouTube to drum up interest. Shares have risen more than 150 percent since mid-May after Gill began posting on X again after a long hiatus.
Regulators target the artificial intelligence sector. The Federal Trade Commission and the Department of Justice must pursue investigations of Nvidia, Microsoft and OpenAI into their dominance in the industry. But geopolitics could complicate these efforts: Washington helped engineer a deal for Microsoft to buy a stake in G42, an Abu Dhabi AI start-up, to prevent China from gaining access to G42’s technology.
The business of extreme heat
The first heat wave of what is expected to be another exceptionally hot summer has enveloped the western United States this week, with temperatures rising to record levels in Phoenix, Las Vegas and other cities. As periods of excessive heat become more frequent and last longer, executives are noticing impacts on their businesses.
In recent years, mentions of “excessive heat,” “extreme heat” and “heat waves” have peaked during third-quarter earnings calls, according to AlphaSense, a data platform.
Companies from Disney to Walmart have noted the impact of the extreme heat. Some recent examples:
“We estimate that adverse weather reduced year-round attendance by more than a million guests,” said Gary Mick, CFO of Six Flags Entertainment, in a conference call in February. “These include rain and snow in California during spring break, followed by a record summer heat wave in Texas and eight consecutive weekends of rain or threatened rain in the Mid-Atlantic and Northeast after Labor Day.”
The chief financial officer of Constellation EnergyDaniel Eggers, said on a conference call in November that as a result of extreme heat in Texas, the state’s grid operator “set 10 new peak demand records during the summer.”
Ronald Coughlin, chief executive of Petco at the time, noted in August that “as a result of the extreme heat, we were able to boost our flea and tick business, leading to an increase in Rx sales of nearly 20% year over year.”
Heat waves have a huge economic impact. A 2022 study, published in the journal Science Advances, which analyzed the impact of human-caused heat waves between 1992 and 2013, estimated that they cost the global economy between $5 billion and $29.3 billion. These costs will likely increase over time.
Barstool Sports’ first CEO to move forward
When Erika Ayers Badan started as CEO of Barstool Sports in 2016, the company had recently been valued at about $12 million. Seven years later, before she left office, gambling company Penn Entertainment paid $551 million for the set of often controversial blogs, podcasts and videos. (Barstool founder Dave Portnoy brought him back shortly after.)
Taking the job at an unproven media company alongside Portnoy, who The Times wrote in 2022 “rose to fame by capitalizing on misogyny and other offensive behavior,” and becoming the company’s first female employee, to boot, was a huge risk. In his upcoming book, “Nobody Cares About Your Career”, Ayers Badan defends this type of bet, among other career advice. She spoke with DealBook’s Sarah Kessler about why companies needed a point of view and about leading a company that was ostensibly for men. The interview has been condensed and edited.
You wrote: “Women have two ways of changing our situation. They can change it from a defensive position that is pure but external” or “they can press inside”. How did this work for you?
One of the things I was very sensitive about when I joined Barstool was the realization that I was essentially committing career suicide by going to a supposedly male company. And what I proved is that I got the right job and was able to do something incredible with it, alongside incredibly talented people.
This represents progress for women, just as it represents progress for women who are making progress outside of the stereotypically male-dominated environment. Both are really important.
Do you think women should still be leaningby this I mean being aware of all the biases against us and trying to adjust our behavior accordingly?
We have to be much less perfect than the women who came before us, who had to be much less perfect than the women who came before them. And I find that incredibly exciting.
But you don’t have to play a certain way. I think I’m good proof of that.
Part of what made Barstool successful was the fact that it wasn’t well-behaved. At the same time, the company’s reputation impeded some business opportunities, such as when the ESPN show was canceled after one episode. Is this trade-off worth it?
For better or worse, we are in an age of influence. And to become influential, you need to be opinionated and show a point of view. You have to get people’s attention. All media will look like this over time as they become more fragmented and people have to find a way to go viral. The gatekeepers, for the most part, have disappeared. You can’t just say nothing. The entire media ecosystem has changed. And for me, the payoff was infinitely worth it.
It seems like most executives are at a point where they really don’t want to talk about issues or say anything that might cause a negative reaction.
You see people giving up completely. And I don’t know how long that works – it works if your product speaks for itself.
Thanks for reading! We see ourselves on Monday.
We would like to receive your feedback. Email thoughts and suggestions to dealbook@nytimes.com.