Tesla is convening a shareholder vote to vote on CEO Elon Musk's multi billion dollar compensation package and the relocation of Tesla's registered location to Texas. From the statements of institutional shareholders, it is evident that Musk is at a disadvantage.
Last week, nine institutional shareholders, including the agency ISS, stated that they do not support providing Musk with a compensation worth approximately $45 billion, nor do they agree to relocate Tesla's registered address.
According to the latest news, Tesla's management is seeking support from retail shareholders for Musk, who accounts for approximately 30% of Tesla's shareholder meeting voting rights. This effort is also seen as key to Musk's power struggle at Tesla. If Musk were to suffer a disastrous defeat at this shareholders' meeting, it could trigger turbulence in Tesla's management and create waves in the capital market.
At this sensitive moment, late last week, Tesla shareholder Michael Perry filed a lawsuit in Delaware, accusing Musk of selling nearly 45 million shares of Tesla stock before the quarterly financial report with poor sales data was released.
Perry stated that Musk knowingly failed to fulfill his promise to achieve "epic year-end performance," so he disposed of approximately $7.5 billion worth of Tesla stocks in the fourth quarter of 2022 (November and December 2022). On January 3, 2023, when Tesla's sales data for the fourth quarter of 2022 was released, Tesla's stock price fell to its lowest point in two years.
Perry accused that this was an obvious act of using his position for personal gain, violating Musk's trust responsibility towards Tesla. He demanded that Musk return all illegal gains, approximately $3 billion, and demanded that all eight directors at the time compensate for losses due to negligence.
Tesla's internal chaos
This insider trading lawsuit is Musk's latest legal challenge and highlights his awkward position in Tesla's internal governance. Due to the slowdown in Tesla's performance, Musk has been repeatedly questioned by Tesla shareholders for not being focused enough and being too greedy.
This is also one of the triggers for salary package voting. In January of this year, Tesla shareholders sued Tesla's board of directors in Delaware for the excessive value of the compensation package promised to Musk in 2018. Subsequently, the district judge ruled that the compensation plan was invalid. Tesla reorganized shareholder voting on this compensation plan after the verdict.
According to industry insiders, even if Musk wins the salary vote, the situation will not significantly improve. The shareholder voting results are likely to be used as supporting evidence in subsequent appeals, but appeals regarding the compensation package will take several months.
Combined with the insider trading lawsuit filed last week, Musk and Tesla are currently deeply embroiled in legal disputes, which is clearly detrimental to Tesla's corporate governance. And Musk himself has also emphasized that if he cannot obtain 25% control of Tesla, he will not be able to develop artificial intelligence products at Tesla, which will result in Tesla being worthless.
However, from the perspective of shareholders, Musk's acquisition of Twitter (now renamed X) by selling Tesla stocks has damaged its credibility, and the trust relationship between shareholders and managers has been torn apart, making it difficult for both sides to return to a state of balance in a short period of time.
This also casts a shadow over Tesla's future: between the shareholder desired good governance model and a strong Musk, Tesla may be dragged into an expensive and long-lasting struggle.