If he tricked or coerced the shareholders into voting this way, then that’s probably illegal, and at the least they would have a cause for civil action against him.
If he was upfront about all of it and didn’t exert any coercive pressure on them, then it’s possible that the shareholders who voted for this made a poor business decision, but that’s their problem.
I think it’s still quite possible that it’s the former, but if that’s the case, we’ll probably hear about the lawsuits soon. Or of course it might be the latter.
To be clear, that Tesla is “once of the most valuable car companies on the planet” is itself a fiscal fantasy. When that happened, its market valuation was greater than the five or six largest automakers worldwide despite the fact that it had the output of a boutique car manufacturer and no technical ‘special sauce’ that another manufacturer could not reproduce with higher quality and lower build cost (even though most are unwilling to commit to the necessary investments to do so), so the drop in Tesla stock price is nothing but a modest and insufficient correction back to something approximating physical reality. The only thing that gave Tesla its outrageous valuation was Elon Musk’s (somehow) mastery as a hype man, and from that point Denholm et al are correct in arguing for Musk’s role as an utterly necessary component in any plan to recover the ‘lost’ stock value.
That Elon has done many things—from his obsession with automation in every aspect and saddling Tesla with SolarCity debt to the CyberTruck and his endless promises of Full Self Driving any quarter now—that have objectively hurt the company’s bottom line would be a rational criticism of his ‘management’, notwithstanding the Ferris wheel of executive comings and goings that Tesla has endured under the mercurial leadership and resistance to anything decision that is contrary to Elon’s ‘vision’, but it is reasonable to observe that he is the primary reason for Tesla’s financial success even as the company struggles in producing quality products and generating a consistent stream of actual revenue.
That Tesla and Elon are a caricature of the kind of fantasy casino capitalism that has become so prevalent in the highly deregulated business economy of the 1990s and 21st century is just a reflection on how normalized this sort of thing has become versus corporate leaders who invest in their company, reputation, and its workforce for consistent long term growth and viability. If the majority of stockholders want to pay Musk an absurd amount of stock options and incentives in chasing an apocryphal valuation, let them. Just don’t bail Musk or anyone else out when it collapses and flames out like Der Hindenburg.
Thank you for writing that so I did not have to, but prepare for the blowback when a bunch of Elonites come by and start responding “Nuh-huh, Musk was the real founder because he brought the bucks!”
I’m not sure that’s true. That’s what he went to prison for. But there are regulations against pyramid schemes that apply even if there is no outright fraud involved (“multi level marketing” firms have to carefully design their business models so it stays just outside the line of what’s allowed)
100% true. I meant that in the sense of “one of the car companies whose shares are currently worth the most”. The fact that’s a fiscal fantasy is a separate (but related) issue
Musk value even as a fraudulent hype man, is not worth remotely close to 55 billion. Especially as this deal in itself is proof positive that Teslas value is completely inflated and totally reliant on a famous bullshit artist to maintain.
Yes, technically, the law is what makes things illegal.
In this case, the apparent support of the deal by the people who would be harmed by the deal operating exactly as it has been described, means that they aren’t victims. They are business people making a business decision. It may be a bad decision, but they’re making it with open eyes.
Well sure, but we have decided this doesn’t cross that line.
And, if it is confirmed the shareholders have approved, then they have decided with eyes open to be fleeced. It’s not like there’s a shortage of advise or articles out there detailing what a terrible idea this is.
But I, for one, am not one for forcibly preventing fools from willingly parting from their own money. I have some empathy for the shareholders who voted no but they knew the risks they were taking by investing in a company with Musk at the helm. And confirmed they were ok with those risks by holding onto that investment while he’s been publicly demonstrating his instability for several years now.
If there were some sort of deception going on, sure, let’s have somebody take a closer look. But otherwise, these folks knew the risks and decided to roll the dice anyway.
But as pointed out in my previous post, those two ideas are somewhat contradictory. If Tesla’s price conforms to reality then the value of Musk’s grab won’t in the end be worth 55 billion. On the other hand if Musk as a hype man is what is keeping the stock heavily inflated then losing him could do more damage to the stock price then giving out the options.
Yes, it makes no sense, but neither does burning tons of coal so you can run massive rooms of computers solving useless puzzles and make a profit.
There is already a court case about this. A Delaware judge (Tesla, like a lot of big corporations is legally registered in Delaware) ruled against the pay package earlier, saying that shareholders hadn’t been given enough notice. The current vote by shareholders won’t resolve the issue legally, but it should improve Musk’s chances on appeal.
My two cents are that if investors who own much of Tesla think Musk is worth the big bucks (and this includes Musk himself who owns about 20 percent) then that’s (literally and figuratively) their business.
Talking about asking the shareholders is in my view deceptive as well given the ownership strucuture of Tesla:
Free float
66,68 %
Elon Reeve Musk
12,89 %
The Vanguard …
6,94 %
BlackRock Fun…
3,85 %
SSgA Funds Ma…
3,51 %
Geode Capital…
1,78 %
Capital Resea…
1,23 %
Norges Bank I…
0,99 %
Goldman Sachs…
0,75 %
BlackRock Adv…
0,70 %
Northern Trus…
0,68 %
Depending in how the funds and the big shareholders vote he does not need 50% of the free float vote, but only 37% of the shares he does not own, while the free float vote, if it were to vote against the big shareholders including Musk himself would need 75% of the vote to succeed. As far as I know only the Norwegian state fund has pledged to vote against his proposal to pocket the billions.
Or, as his recent friend would say: the vote is rigged.
Yes, but I feel like there are two issues being conflated here.
One is whether or not such behavior deserves legal consequences right now. And the answer is no, it doesn’t, because no crime has been violated (as far as we know).
The other issue is whether or not the law should allow such a thing, and that probably deserves consideration at least.
Yeah this is absolutely true unfortunately (as far as we know, hell this is so ridiculous I’m not going to be super shocked if it turns out there is loads of crime going on here and this is is Elon’s hush money)
Yeah this is what I’m saying. And there are different levels of the this, even if making this an outright felony does not make sense. The fact our business regulations are setup so this can happen and be profitable for at least some of the parties involved is not an accident. We as a society decided to set them up that way, and we could change them
I think it’s more accurate to say that the wealthy and powerful are the ones who set it up that way, and are the ones benefiting from it. (Which just reinforces the point you’re making, I think.)
Well, I guess I would counter with that he’s worth whatever the shareholders agree to pay him to keep puffing up the hype. Normally I think there is a public responsibility to prevent ‘business leaders‘ from errantly exaggerating their importance in pursuit of pulling one over on unwitting stockholders but at this point I give exactly zero shits for anyone who individually bought into Tesla (although still sympathy for people whose retirement funds invested in it). I know a number of people who invested in Tesla on the way up or near the peak of value, and I told every single one of them that this was a hype bubble because Tesla could never make enough revenue to justify that valuation, and I now have no tolerance for their whinging about how the public just doesn’t understand the ‘real value’ of Tesla or the vision of Elon Musk.
I think you’re confusing the initial sale of stock for equity funding with what happens to those shares down the line.
It’s true that if a company is starting out and issues shares, that the money from the sale is the starting capital for the company. And if they issue more shares later, that’s true as well.
But if those shares are subsequently bought and sold on the open market, that has NO actual effect on a company’s internal finances, because they’re fundamentally outside the company. In fact, the relationship goes the other way- a company’s internal finances have an effect on the stock price, as that stock price basically represents the market’s collective opinion of whether that company is profitable, well run, etc…
Hold on, the “this” in the above statement is offering a compensation package to your CEO that includes discounted stock.
The issue with the Musk package is not what it is, which is completely normal, but the excessive size of the package, which is not something the government normally attempts to regulate.
That’s a big difference between Musk and Madoff. Fraud is illegal whether it’s $5,000 , $5,000,000 or $5,000,000,000. Discounted stock is not illegal, options are not illegal, if this was $55,000 compensation nobody would bat an eye about its legality.
No, what they’re doing is giving him the option to buy what’s called treasury stock (i.e. shares that are already outstanding, but the company itself owns) at a super-cheap price that’s below the market rate.
It’s not quite the same thing as issuing new shares, in that the price is controlled by the company itself, and it doesn’t increase the number of shares outstanding (which dilutes the value of the other ones).
Treasury stock and buy-backs aren’t inherently unusual or shady, and nor are stock options at a favorable price. What’s shady in this case is the magnitude of the thing and the way they’re all going about it.
The fraud is what sent him to prison but there are regulations against pyramid schemes, that do not require fraudulently covering up:
We have decided that pyramid schemes are not something we should allow as a society. This seems like something just as detrimental to society and the economy
I was making the point that we as a society have decided pyramid schemes like Madoff’s are not acceptable and regulate against them. But this blatant cash grab by Musk is allowed.
I understand the former is illegal and the latter is legal as far as the current law is concerned. But morally and in terms of how detrimental they are to society I don’t see all that much difference between the two.