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Crikey
Crikey
Business
Stephen Mayne

Memo to Greg Combet: vote the Future Fund’s $110m Tesla shares against Musk’s latest pay scam

Media Watch host Paul Barry was right to pour cold water on the various federal cabinet ministers slamming Elon Musk for refusing to take down graphic videos from X (formerly Twitter) last week and instead choosing to fight Australia’s eSafety commissioner in the Federal Court.

However, as the leader of a strong shareholder nation with an enviable record for good corporate governance, Prime Minister Anthony Albanese should be lining up Musk on another issue where the billionaire is far more vulnerable.

Musk has somehow persuaded his hand-picked Tesla board to put one of the most lucrative and outrageous incentive schemes ever presented at a shareholders’ meeting back for another vote on June 13, even though it was knocked out by a Delaware judge earlier this year.

Check out this controversial Tesla proxy statement for the upcoming shareholder vote, including the embarrassing covering letter from Tesla’s chair, Australia’s own Robyn Denholm. Denholm also appeared in a five minute corporate video selling the proposal and various other strategic and governance matters.

Under the bizarre headline “Ratification Will Restore Tesla’s Stockholder Democracy”, Tesla’s chair penned the following populist attack on the Delaware judge: 

“Corporate democracy and stockholder rights are the heart of Tesla’s values. Earlier this year, a Delaware court … struck down one of your votes and rescinded the pay package that an overwhelming majority of you voted to grant to our CEO, Elon Musk, in 2018.

“The court decided, years later, that the CEO package was not ‘entirely fair’ to the very same stockholders who voted to approve it — even though approximately 73% of all votes cast by our disinterested stockholders voted to approve it in 2018.

“Because the Delaware court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value. That strikes us — and the many shareholders from whom we have already heard — as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it.”

Oh dear. The richest man in the world hasn’t been paid. Poor him. 

Judge Kathaleen McCormick did Tesla’s minority shareholders a big favour by saving them from tens of billions of dollars of completely unnecessary dilution. She was also the judge who effectively forced Musk to honour his contractual promise to foolishly buy Twitter for US$44 billion. Musk is so upset with Justice McCormick that he’s proposing to move Tesla’s incorporation from Delaware to Texas at the June 13 meeting.

Musk owned 22% of Tesla at the time the pay proposal was first put to a vote at a special meeting of Tesla shareholders on March 21, 2018.

But Musk wasn’t counting on former heavy metal drummer Richard Tornetta, the owner of just nine Tesla shares, successfully challenging the proposal in the Delaware courts.

The full 201 page judgment is worth a read but this quote from the McCormick was particularly good:

“Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?”

Indeed, how can you argue that a 22% shareholder doesn’t have enough incentive or is a flight risk? Amazingly, the Tesla directors didn’t even contract for a minimum time commitment from Musk, who then went off on all sorts of frolics elsewhere, including buying Twitter.

In terms of the actual proposal, Musk’s obliging directors agreed to give him 12 tranches of options to buy approximately 304 million Tesla shares at just $US23.33 each.

For this he was required to shell out US$7.12 billion in cash, but with the stock closing at US$180 on Wednesday night after a surge this week driven by Musk’s latest deals with the Chinese government, those same shares are currently worth US$54.7 billion. If shareholders approve this deal, they are immediately diluting themselves out of more than US$47.6 billion in value. What rational shareholder would do that? What independent director would endorse such a proposal?

Musk is already highly motivated and aligned as he currently owns around 407 million shares, or 13%, of Tesla’s outstanding capital of 3.13 billion shares. He is allowed to sell these shares at any time if he wishes, and did just that with around 9% of the company to finance his Twitter acquisition. His remaining Tesla shares are currently worth a staggering US$73.26 billion. The poor man who apparently has not been paid by Tesla for the past six years does not need any more.

Musk’s problem is that he’s a control freak who has stated he wants to own 25% of Tesla, but was forced to sell down to fund his Twitter purchase and now can’t afford to pay full freight to regain control. When floating Tesla he erred in not going with the dual class gerrymander structure preferred by the Murdochs, Meta and Alphabet to ensure the founders remain in total control. Thankfully, these sorts of arrangements are banned by the ASX.

It is extraordinary that Tesla directors like Robyn Denholm and James Murdoch have failed to take advantage of McCormick’s decision to reduce the preferential deal with Musk and are now effectively campaigning to give away tens of billions of dollars worth of shareholder funds through what is probably the most dilutive in-the-money options issue served up in the history of public company capitalism.

If, like the Future Fund, you happen to be a Tesla shareholder, please vote no on June 13.

The Future Fund has only recently embraced transparency with its individual investments, hence we can now see that it owned 396,056 Tesla shares as of December 31, 2023. These are currently worth around A$110 million.

Under the Future Fund’s legislation, Parliament or ministers can’t tell it how to invest or vote its shares. However, if incoming Future Fund chair Greg Combet (who will start “around mid-year”) wants to make a splash, how about publicly leading a Team Australia no campaign to deny Musk his outrageous pay day?

There is no US equivalent of the Australian Shareholders’ Association for retail investors, so that’s quite a vacuum into which the Future Fund and Australia’s big industry funds could leap to teach Musk and his board a basic lesson about governance and remuneration.

You just don’t give a founder or CEO oodles of cheap stock in a public company when they already own plenty. Especially if the man in question is tooling around on other frolics rather than focusing on his main job.

Should the Future Fund back Musk’s pay deal, or should it send him packing? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.

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