Greg Varallo, attorney for the investor who sued, Richard Tornetta, said the investors weren’t told that Musk himself came up with the plan or that the board’s members were beholden to Musk. Last February, Judge Kathaleen McCormick
called this argument a “kill shot.”
“Defendants were unable to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process,” McCormick wrote in her decision. “The defendants proved that Musk was uniquely motivated by ambitious goals and that Tesla desperately needed Musk to succeed in its next stage of development, but these facts do not justify the largest compensation plan in the history of public markets.”
One of the big questions in the case was how much of Tesla Musk controlled — and not just through his shares. “Musk wielded the maximum influence that a manager can wield over a company,” McCormick wrote.
The board of directors consisted of a lot of people who had close relationships with Musk:
- Elon Musk.
- Antonio Gracias, a member of the compensation committee and friend of Musk’s who has amassed a great deal of wealth from investing in Musk’s companies as far back as PayPal.
- James Murdoch, another Musk buddy who vacationed with Musk across the globe.
- Musk’s brother, Kimbal.
- Ira Ehrenpreis, one of the members of the compensation committee, acknowledged to the court that his relationship with Elon and Kimbal Musk had “significant influence on his professional career.”
- Brad Buss, another member of the compensation committee who “owed 44 percent of his net worth to Musk entities.”
- Robyn Denholm, a member of the compensation committee whose compensation as a Tesla board chair was more money than she made from other sources.
- Linda Johnson Rice, who appears to have been truly independent.
- Steve Jurvetson, who had a prolonged period of absence during this incident and wasn’t considered a major player by the judge.
“Ultimately, the key witnesses said it all — they were there to cooperate with Musk, not negotiate against him,” McCormick wrote.