Tesla CEO Elon Musk testified this morning in a shareholder lawsuit examining the massive compensation package that helped make him the world’s richest man.
Tesla is being sued by plaintiff Richard J. Tornetta, who says the company was wrong to award Musk his 2018 compensation package, which was approved by shareholders at the time. Tesla said then that it could be worth nearly $56 billion, and the net worth today is $50.9 billion.
Musk took the stand in Delaware District Court in Wilmington shortly after 9 a.m. Musk’s testimony came just as he is vying for control of Twitter, giving an overnight ultimatum to employees to become “extremely hard-nosed,” which entails “long hours of high-intensity work. “, or leave the company.
Musk began the day under questioning from his defense attorney and a plaintiff’s attorney, where he was asked about his governance of Tesla and his time 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 stood by 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 massive pay package was unjust enrichment and claims that the board failed in its legal duty to act in the best interests of Tesla shareholders. The suit describes Musk as a “part-time CEO” as he leads other ventures. 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 huge payday.
Musk himself controls more than 20% of all outstanding Tesla shares, including unexercised options.
Musk initially denied on Thursday that he actually negotiated against him over how many shares he would receive in his pay package. (Trading against himself would essentially give Musk total control over the outcome and raise big questions about the board and whether he was fulfilling his fiduciary responsibilities.)
But the plaintiff’s attorney, Gregory Varalo, then repeated some of Musk’s testimony, where he said at one point about the pay package, “I guess I was negotiating against myself.”
Musk later acknowledged that he said that. It was one of several instances where Varallo appeared to point out inconsistencies in Musk’s statements, current and former.
Less than three minutes into the questioning, Musk said he believed there had been consultation with the board before changing his title to “Technoking.”
Varallo then repeated Musk’s testimony in which Musk said he had not consulted with the board about the title change.
Musk had also said in his testimony, which was repeated in court on Wednesday, that he was the person who had the vision for Tesla.
But in court Wednesday Musk struck a different tone and objected to being asked the question in yes-no form.
“I think you are asking complex questions where yes or no is not possible. “Yes is more accurate than no,” Musk said Wednesday. “But your question is a tricky question that is usually used to mislead people.”
Varallo emphasized the degree of control Musk maintains over Tesla.
Musk said he did not seek approval when he announced a potential stock purchase recently. He also said he did not seek approval to say he saw a path for Tesla to become more valuable than Apple and Saudi Aramco, the world’s two most valuable companies.
The plaintiff’s lawyers 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’ve also compared Musk’s compensation to Tesla’s average salary, which they said is $40,000.
While the lawsuit focuses on Musk’s compensation, the plaintiffs’ lawyers have raised a wide variety of questions about his governance at Tesla. Musk balked at a question about when he tweets about Tesla.
“We’re cross-examining an interesting case, Mr. Musk,” Varalo replied. “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 criticisms of the SEC.
“The consent decree was entered into under duress,” Musk argued on Wednesday, referring to a 2018 settlement with the SEC over Musk’s claims that he had “secured financing” to take Tesla private at $420 a share. “An agreement entered into under duress is not valid as a foundation of law.”
At a TED conference earlier this year, Musk said he only agreed to a settlement because if he had continued to fight the SEC, Tesla’s banks would have cut off financing when it needed cash. “I was forced [to lie] to save Tesla’s life and that’s the only reason,” Musk said at the April event.
Varallo then asked if Musk had any legal training. Musk described some familiarity.
“If you have enough lawsuits, you pick up a few things along the way,” Musk said.
Tesla executives have defended Musk’s pay package in two days of filings so far.
“She was around to motivate him to achieve things that were bold and daring and to devote his time and energy to that as opposed to his other interests,” Tesla board chairwoman Robyn Denholm testified Tuesday. Musk was interested in funding interplanetary travel, he said. Beyond Tesla, Musk is also CEO of SpaceX and owner of Twitter, as well as head of the Boring Company, which specializes in underground tunneling, and is the founder of Neuralink, which seeks to put computer chips in people’s brains.
Musk’s compensation package targets were described as lofty and incredibly challenging.
Former Tesla Chief Financial Officer Deepak Ahuja described the plan as “extremely high-risk, high-reward.”
“Although I believe deeply in Tesla, I felt that the difficulty level of these milestones was so high that for a mere mortal like myself, I did not find this to be an exciting incentive plan on a personal level,” Ahuja said.
Musk pushed shareholders to approve the plan, warning that he was “very offended” by the lack of support and that those who objected 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.
