Tesla CEO Elon Musk testified this morning in a shareholder lawsuit examining the massive compensation package that helped make him the world̵[ads1]7;s richest person.
Tesla is being sued by plaintiff Richard J. Tornetta, who says the company erred in awarding Musk his compensation package in 2018, which shareholders approved at the time. Tesla said at the time that it could be worth nearly $56 billion, and its net worth today is $50.9 billion.
Musk took the stand in the Delaware Court of Chancery in Wilmington just after 9 a.m. Musk’s testimony came just as he asserts his control over Twitter, and overnight gave an employee an ultimatum to get “extremely hardcore,” which involves “working long hours with high intensity”. ” or leave the company.
Musk began the day under questioning from his defense attorney and a lawyer for the plaintiff, where they asked him about Tesla’s governance and the time he spent at the company, as well as his relationship with the board, which is supposed to be independent of Musk and represent shareholders. Musk acknowledged his friendship with board members, including some shared family vacations. Under questioning, Musk defended himself, saying he maintained his duty to increase Tesla’s market value, but admitted that he sometimes does not seek board approval for public statements.
The lawsuit alleges that Musk’s huge pay package was unjust enrichment, and claims that the board failed in its legal duty to act in the best interests of Tesla’s shareholders. The suit describes Musk as a “part-time CEO” as he heads other businesses. One of the points of contention in the case is whether Tesla’s board is truly independent of Musk and represents shareholders, or whether he had undue influence on the board to award him such a massive salary.
Musk himself controls more than 20% of all outstanding Tesla shares, including unexercised options.
Musk first denied on Thursday that he was essentially negotiating against himself about how many shares he would receive in the pay package. (Negotiation against itself would essentially give Musk total control over the outcome, raising major questions about the board and whether it fulfilled its fiduciary responsibilities.)
But plaintiffs’ attorney Gregory Varallo then played back some of Musk’s testimony where at one point he said regarding the pay package, “I guess I was negotiating against myself.”
Musk then acknowledged saying this. It was one of several occasions where Varallo appeared to highlight inconsistencies in Musk’s statements, current and past.
Less than three minutes into questioning, Musk said he believed there had been consultation with the board before his title was changed to “Technoking.”
Varallo then replayed Musk’s deposition in which Musk said he had not consulted with the board about the title change.
Musk had also said in his statement, which was repeated in court on Wednesday, that he was the person who came up with the vision for Tesla.
But in court Wednesday, Musk struck a different tone, objecting to being asked the question in a yes-no format.
“I think you are asking complex questions where yes or no is possible. Yes is more accurate than no, Musk said Wednesday. “But your question is a complex question that is often used to mislead people.”
Varallo highlighted the degree of control Musk has over Tesla.
Musk said he did not seek approval when he recently announced a potential stock buyback. He also said he was not seeking approval to say he saw a path for Tesla to become worth more than Apple and Saudi Aramco, the two most valuable companies in the world.
Plaintiffs’ lawyers have described the package this week as close to the gross domestic product of the entire state of Delaware, and far more expensive than building the World Trade Center. They have also compared Musk’s compensation to the average Tesla salary, which they have said is $40,000.
While the lawsuit is focused on Musk’s compensation, attorneys for the plaintiffs raised a wide range of questions regarding his management of Tesla. Musk objected to a question about when he tweets about Tesla.
“We are being cross-examined on an interesting matter, Mr. Musk,” Varallo retorted. “So when your lawyer wants to make an objection, he has the right to do so, but unfortunately you don’t. I suspect he will if he doesn’t like the question.
The exchange led Musk to repeat his criticism of the SEC.
“The sick decree was made under duress,” Musk claimed Wednesdayciting a 2018 settlement with the SEC over Musk’s claims that he had “secured financing” to take Tesla private at $420 per share. “An agreement entered into under duress is not valid as a legal basis.”
At a TED conference earlier this year, Musk said he agreed to a settlement only because if he continued to fight the SEC, Tesla’s banks would have cut off financing at a time when they needed cash. “I was forced [to lie] to save Tesla’s life, and that’s the only reason,” Musk said at the event in April.
Varallo then asked if Musk had any legal training. Musk described a certain familiarity.
“If you’re in enough lawsuits, you pick up some things along the way,” Musk said.
Tesla executives have defended Musk’s pay package after two days of testimony so far.
“It was about motivating him to achieve things that were bold and daring, and that he spent time and energy on that as opposed to his other interests,” Tesla Chairman Robyn Denholm said Tuesday. Musk was interested in funding interplanetary travel, she said. In addition to Tesla, Musk is also the CEO of SpaceX and owner of Twitter, as well as leading the Boring Company, which specializes in underground tunneling, and he is the founder of Neuralink, which attempts to put computer chips in people’s brains.
Musk’s compensation package goals were characterized as lofty and incredibly difficult to achieve.
Former Tesla CFO Deepak Ahuja described the plan as “extremely high risk, high reward”.
“While I believe deeply in Tesla, I felt that the difficulty level of these milestones was so high that I did not find this a compelling incentive plan on a personal level for a mere mortal like me,” Ahuja said.
Musk pushed for shareholders to approve the plan, warning that he was “very offended” by the lack of support and that those who opposed it would not be welcome at any of his companies, according to emails read in court by the plaintiff’s lawyers.
Chris Isidore contributed to this story.