Tesla CEO Elon Musk took the witness stand Wednesday to defend himself in a shareholder lawsuit challenging a compensation package he was awarded by the company’s board of directors that is potentially worth more than $55 billion US ($73 billion Cdn).
Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.
“I was entirely focused on the execution of the company,” he said.
Musk, known for his combative testimony, told the court in his opening remarks that he thought it was “extremely unlikely” that Tesla Inc. would succeed in achieving his vision in 2016, requiring his full attention.
Musk acknowledged that he vacationed with board members and sometimes tweeted about the company without clearing the messages with a Tesla lawyer as required by a 2018 settlement with a securities regulator.
Tesla shareholder Richard Tornetta first brought the lawsuit in 2018, hoping to prove that Musk used his dominance over Tesla’s board to dictate terms of the compensation package, which did not require him to work at Tesla full-time. Tornetta has asked the court to rescind Musk’s pay package.
In court Wednesday, Tornetta’s lawyer tried to portray Tesla as a company completely in the grip of Musk, the world’s richest person, who sought the record pay package with easy targets to help finance his ambitions to travel to Mars.
Musk said he would not accept a pay plan that required him to punch a clock or commit certain hours to Tesla.
“I pretty much work all the time,” he said. “I don’t know what a punch clock would achieve.”
Musk’s testimony comes as he is struggling to oversee a chaotic overhaul of Twitter Inc., the social media platform he was forced to buy for $44 billion in a separate legal battle before the same judge after trying to back out of that deal.
On Monday and Tuesday, the court got a taste of Musk’s testimony through short clips from his 2021 deposition in the Tesla litigation. In one clip, Musk dismissed the idea that the board should have discussed requiring that he spend more time with Tesla.
“That would have been silly,” said Musk.
Concerns over distractions at Twitter
Tesla investors are understood to be growing concerned about Musk’s focus on Twitter, and on the stand the billionaire said he focuses his attention where it is needed most, which in 2017 was Tesla.
“So in times of crisis, allocation changes to where the crisis is,” said Musk, who wore a dark suit and tie.
On Monday, Musk tweeted he had worked through the night at Twitter’s San Francisco headquarters and would keep “working & sleeping here” until the social media platform was fixed.
Musk also tweeted on Monday that, “I have Tesla covered too,” saying he planned to work at the electric vehicle maker for part of this week. Tesla has an office in Palo Alto, Calif., and a factory in Fremont, Calif.
However, the two tweets were no longer available as of Wednesday morning.
“Tesla investors are going to be frustrated,” said Gene Munster, managing partner at venture capital firm Loup Ventures. “He’s probably going to spend more time on Twitter than any Tesla investor feels comfortable about.”
Tesla’s shares have dropped by 50 per cent since early April, when Musk disclosed he had taken a stake in Twitter. Sales of Musk’s own Tesla shares — totalling $20 billion since he disclosed his Twitter stake — have added to the pressure.
Unique case
The disputed Tesla package allows Musk to buy one per cent of Tesla’s stock at a deep discount each time escalating performance and financial targets are met. Otherwise, Musk gets nothing.
Tesla has hit 11 of the 12 targets, according to court papers.
The legal team for Musk and the Tesla directors, who are also defendants, have cast the pay package as a set of audacious goals that worked by driving 10-fold growth in Tesla’s stock value, to more than $600 billion from around $50 billion.
They have argued the plan was developed by independent board members, advised by outside professionals and with input from large shareholders.
Shareholders generally cannot challenge executive compensation because courts typically defer to the judgment of directors. The Musk case survived a motion to dismiss because it was determined he might be considered a controlling shareholder, which means stricter rules apply.
“There is no case in which a 21.9 per cent shareholder who is also the chief executive has received a structured payout plan of this magnitude,” Lawrence Cunningham, a corporate law professor at George Washington University, said of the lack of precedent.
