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By Peter Coy
Opinion Writer
Angela Aneiros, an assistant professor at Gonzaga University School of Law in Spokane, Wash., can’t get enough of Elon Musk.
“For better or worse, he’s like the gift that keeps on giving to corporate law professors. Because there’s just so much. It actually helps me teach the material. The students relate to Musk and I can say to them, ‘Here’s the perfect example of what not to do.’”
The latest perfect example is what Musk wrote on Monday on X, which he owns. He said he is “uncomfortable” working to make Tesla into a leader in artificial intelligence and robotics unless he has 25 percent of the voting shares in Tesla. “Unless that is the case,” he wrote, “I would prefer to build products outside of Tesla.”
To Aneiros and other experts in corporate law, Musk’s threat is audacious, for reasons I’ll get into. But it’s also a teachable moment in that it surfaces principles concerning how corporations, their boards and their executives work with one another.
Musk has repeatedly said that his vision is for Tesla to be a leader in A.I. and robotics. People bought shares because they believed him. Now he’s saying that he might develop those technologies outside of Tesla, so the carmaker would presumably have to buy them like any other arm’s-length customer. That would be a huge blow to Tesla’s value.
Unless, of course, Musk gains that 25 percent voting control he wants. And how much would that cost? He has about 13 percent of the shares now, and the company is valued at about $667 billion, so leveling him up to 25 percent would be a gift to him of around $80 billion. That would more than make him whole for his losses on X, the company he bought partly with cash raised from selling his own Tesla shares.
And all this for getting him to do what he is supposed to be doing anyway, namely fulfilling his fiduciary duty to Tesla shareholders. Who but Elon Musk would dare float such an idea?
One could argue that Musk owns the ideas in his head and can do what he wants with them. That would be true if he had an idea for a chain of exercise studios or a rutabaga farm. Under what’s known as the corporate opportunity doctrine, he can’t so easily smuggle away ideas that are — in his own words — integral to Tesla.
Aneiros wrote an article for the Berkeley Business Law Journal last year titled “Limiting the Power of Superstar C.E.O.s.” Its first three sentences were, “Innovator. Brilliant. Narcissist.” One guess whom she was writing about.
The interesting question to law professors — and, of course, to Tesla shareholders — is whether Tesla’s pliant board will give him what he wants. And if it does, what recourse shareholders have.
Ann Lipton, an associate professor at Tulane University Law School in New Orleans, pointed out that Tesla is already in court in Delaware defending itself against a class-action lawsuit over a 2018 deal that entitled Musk to up to $55.8 billion depending on Tesla’s performance, possibly the largest pay package ever. (As an aside, enormous amounts of money can be de-motivating if they make recipients so rich, even with their lavish lifestyles, that they never need to work again.)
Lipton said that giving Musk more shares in return for his services “is a fairly standard thing to do” and is entirely within the directors’ authority. The question is whether such a large award would violate the board’s fiduciary duties to shareholders. That, she said, “is a very complicated question.”
As currently understood under the laws of Delaware, where Tesla is incorporated, a decision about the C.E.O. passes muster if it’s made by an independent body, Lipton said. That could be the board, or a board-appointed committee if the board itself is considered too close to the chief executive, or even the shareholders as a whole, who could be asked to vote.
It gets more complicated if Musk meets the standard of being a “controlling shareholder,” which doesn’t necessarily require having 50 percent or more of the shares. If he does, then the decision might require two levels of approval — the board or board-appointed committee plus the shareholders (excluding Musk).
Failing to get all that doesn’t mean a pay award is illegal, but it would be subjected to close scrutiny by a court, Lipton said. The Delaware Supreme Court is considering a case that could end up changing those standards, which would affect the lawsuit involving Musk’s 2018 award and his latest ask if it goes to court, as seems likely if the board goes along. I asked for responses from Musk and the company but didn’t hear back immediately.
Ah, Elon Musk. The gift that keeps giving.
I really enjoyed reading your piece on dissents on the Federal Open Market Committee. The Federal Reserve Board’s oral history interviews give a nuanced view of the tensions that arise from F.O.M.C. dissents. When Alan Blinder, who served as vice chairman of the board from 1994 to 1996 under Chairman Alan Greenspan, was interviewed in 2010, he said, in part, “Dissent in general at the Fed, and even more so if you’re vice chairman, means that you’ve jumped a pretty high bar in terms of how much you disagree.” Blinder also said, “I characterize the Greenspan F.O.M.C. as an autocratically collegial committee. That means, we all go along with the autocrat.”
Jaime Marquez
Arlington, Va.
The writer, a former Fed economist, is the associate director of the masters in international economics and finance program at the Johns Hopkins School of Advanced International Studies.
The lyrics of “Kodachrome” by Paul Simon (“When I think back on all the crap I learned in high school / It’s a wonder I can think at all”) fit for college also, it would appear from your article. The so-called educators do not want to change the textbooks. Because then their lecture notes, tests, etc., would need to be rewritten. Heaven forbid!
Frank Wentz
Stockton, Calif.
“Justice being taken away, then, what are kingdoms but great robberies? For what are robberies themselves, but little kingdoms?”
— Augustine of Hippo, “The City of God,” Book IV, Chapter 4 (Early fifth century A.D.)
Peter Coy has covered business for more than 40 years. Email him at coy-newsletter@nytimes.com or follow him on Twitter. @petercoy
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