The Chancellor's Excellent Questions

https://montanaskeptic.substack.com/p/the-chancellors-excellent-questions

by nickcotter • 2 years ago

46 36 2 years ago

montanaskeptic.substack.com

nickcotter• 2 years ago

Subtitle: The August 2 Tornetta v. Musk hearing on "ratification" is one for the ages.

h2odragon• 2 years ago

All the reasons listed why Elon shouldn't be paid according to a contract he had before hand, that got re-ratified by shareholders, amount to "the Law should work different for people we don't like", no?

sdwr• 2 years ago

There are plenty of situations where majority approval shouldn't be accepted. Matt Levine talks about one a lot, where a company in bankruptcy agrees to honor the claims of 51% of its creditors and blow off the others.

dfhvneoieno2• 2 years ago

Exactly. Countries don't work like _literal_ democracies of the 51% majority, and neither should companies.

FabHK• 2 years ago

The article and its predecessors lay out the legal doctrines under which company CEOs can’t just take whatever they want from “their” company.

wrs• 2 years ago

“So,” asked the Chancellor, “this has never been done before?” After a bit more rhetorical contortion, Ross finally admitted that, “Yes,” this has never been done before.

So no, it’s more like “we don’t make up new law to give people you like whatever they want”.

deafpolygon• 2 years ago

“An Historic Day”

Shouldn’t that be “A Historic Day”?

sandworm1012• 2 years ago

No. An is used before vowel sounds, not just vowels. Ive had this corrected many times by brits. Imho, british education is much more focused on speaking english than writing it, which changes the emphasis of some rules. But it sounds strange when speaking in a non-brit accent. "An istoric" v "An historic".

brianlash• 2 years ago

Historic begins with a hard h consonant sound. The h isn't silent. "A historic" is correct.

With that said, I don't personally have a problem with "an historic." I recognize it as a convention adopted by people whose dialect favors the silent h historic.

blitzar• 2 years ago

Yes it should. Sadly, some people like to butcher the English language, and it has become acceptable.

InitialLastName• 2 years ago

Other examples of butchering the English language in this way:

https://www.opensourceshakespeare.org/views/plays/play_view.... (line 2875)

https://www.opensourceshakespeare.org/views/plays/play_view....

card_zero3• 2 years ago

Optionally. "Like many terms that start with a non-silent h but have emphasis on their second syllable, some people precede historic with an, others with a."

https://en.wiktionary.org/wiki/historic

The non-silent h (sound) is itself optional.

skywal_l• 2 years ago

ELI5 anyone?

qup• 2 years ago

Musk's team tried a new legal strategy and the judge didn't like it.

The author really hates Musk.

mrkstu2• 2 years ago

It's really unfortunate the discursion the article took into ripping into Musk at a personal level- it changed the tenor from professional and thoughtful into a partisan attack.

Its unfortunate at a larger level that the commentariat can't help but injecting their bias directly into things like this, when the facts of the story can tell you everything you need to know about the motivations of the people involved. Those facts are /weakened/ sitting alongside vituperative editorializing.

peterfirefly• 2 years ago

He has hated Musk since at least 2016 when he started publishing "analyses" on SeekingAlpha.com as "Montana Skeptic".

He was very often wrong, which didn't make him hate Musk less.

Veserv• 2 years ago

Well, when Elon Musk doxes you so he can personally call your boss threatening to sue you and embroil your boss in litigation unless you immediately cease posting articles unrelated to your job pseudonymously [1][2] it makes sense you might look unfavorably on his legal tactics.

[1] https://seekingalpha.com/article/4189933-tesla-and-montana-s...

[2] https://seekingalpha.com/instablog/37229846-montana-skeptic/...

ralferoo2• 2 years ago

The truly staggering thing about this "deal", IMHO, is that people were crazy enough to vote for it. Sure, you can argue a CEO deserves to be compensated for his work, but there has to be a limit on publicly owned companies. Various people have talked about the magnitude of the proposed payout, what's usually overlooked is that the figure was about 10% of Tesla's market cap. Effectively, Musk was trying to instigate a 10% tax on everybody's ownership of the company. Not 10% of profits, not even 10% of revenue, but 10% of everything including illiquid assets. That's just for one year's compensation, presumably he also expected similar going forward too.

I cannot understand why any shareholder would vote for this devaluation of an asset. Not only did I vote against it, as soon as the vote passed and it'd somehow got a majority, I sold off all my directly owned shares. Sadly, I also own a lot indirectly through ETFs by virtue of TSLA being in S&P 500.

dfhvneoieno2• 2 years ago

I agree with everything else, but..

Sadly, I also own a lot indirectly through ETFs by virtue of TSLA being in S&P 500.

this bit strikes me as a mistake. I did the calculations recently for this, actually, and even if you assumed that TSLA went to zero (which it won't; it's overvalued but its value isn't zero) the loss on S&P would be extremely small (don't remember actual numbers, but the calculation is easy to reproduce).

ralferoo2• 2 years ago

Sure, TSLA is 1.39% of the ETF I invest in. On the one hand, that's a low percentage, but on the other hand because I've investing in an S&P ETF for so long, it's significantly more than I'd like for a company run by a CEO I don't trust!

Oh, and just to be clear, I'm not considering the case of TSLA going to 0. Arguably TSLA dropping by 10% isn't significant in the grand scheme of things as it regularly fluctuates by that much in a day anyway, but I'd still rather have less exposure to that than more.

username332211• 2 years ago

What's even crazier is that the award was basically 100% of the market capitalization of the company in 2018, when the deal was originally approved.

twic• 2 years ago

Companies like Tesla are why i'm increasingly interested in ETFs tracking alternatively weighted indexes like RAFI: https://www.rafi.com/index-strategies/rafi-fundamental-indic...

IncreasePosts• 2 years ago

I cannot understand why any shareholder would vote for this devaluation of an asset

A lot of people made a ton of money on TSLA, and they think it is largely due to Elon. Not because of his engineering prowess or whatever, but just because it became a memestock with his help.

Joker_vD• 2 years ago

I cannot understand why any shareholder would vote for this devaluation of an asset.

This is why we have a kind government, whose most eminent and enlightened courts of justice would step in and save people from their own bad decisions. After all, even the TSLA shareholders are still human beings and should enjoy the protection of the law, just like any other more valuable citizens would.

sva_• 2 years ago

Maybe the arguments are correct, but that's some next-level ass kissing there

_vaporwave_• 2 years ago

I think it's clear that this was not at all an "arm's length negotiation" with an independent Special Committee but, at the same time, it's not clear that any harm was done to Tesla shareholders.

Tesla traded up on the news that the pay package was re-approved by shareholders and the similar voting outcome (72% vs 73% originally) in light of all of this information seems to indicate that the shareholders genuinely want this to go through.

nejkbnek2• 2 years ago

Tesla traded up because there was a risk that Elon would have a hissy fit if the vote failed, and he would single-handedly destroy the company. The fact that the risk of Elon rage-quitting was priced in demonstrates why the vote wasn't an appropriate solution in the first place, the minority shareholders are coerced to "take it or leave it" in a way that corporate law is meant to avoid.

diebeforei485• 2 years ago

It is honestly ridiculous that the judge thinks she knows better than the shareholders.

The original plan had some procedural defects, great. Levy a fine. But don't infringe shareholder rights to determine compensation, and certainly don't award billions to the guy with 9 shares.

xivzgrev• 2 years ago

I have a lot of respect for great lawyers/judges. While they're saying what is essentially gibberish to me, and they're asking "open' questions, that build on the responses, all along they're slowly backing their opponent further and further into a trap until a dramatic finish when all is revealed.

Example here

The Chancellor interrupted to ask whether he could cite any case that permitted common law ratification of “an adjudicated breach of the duty of loyalty.” Ross danced around the question, insisting that Defendants were not arguing that the vote changed the Court’s adjudication “with respect to conduct.” Blah blah blah, skip a bit...

“So,” asked the Chancellor, “this has never been done before?” After a bit more rhetorical contortion, Ross finally admitted that, “Yes,” this has never been done before.

Thus, with these questions, the Chancellor established that for her to rule in Defendants’ favor, her Court of Chancery, which is subordinate to the Delaware Supreme Court, would be placed in the position of establishing a completely new legal doctrine.

It's like a brilliant magic trick, if you can follow along.

nejkbnek2• 2 years ago

I think the Chancellor is getting at an important issue with simple yes/no voting as a remedy for this kind of issue.

If, in 2018, Tesla had appointed a Special Committee on compensation which negotiated with Musk in an arms-length way they might have extracted a better deal. This deal would dilute minority shareholders less than the current 2018 deal while still retaining Musk as an executive.

Unfortunately because the original negotiation was not done correctly the only options for shareholders now are "ratify the original deal" or "lose Musk as an executive". It's pretty clear to the shareholders that Musk deserves _some_ compensation, and that he's likely to torpedo Tesla if he doesn't get it. But there's no mechanism to remedy the original defect in the compensation plan, which is that the Board didn't actually negotiate on behalf of minority shareholders in good faith.

If the Tesla board was trying to be compliant and respect the rights of minority shareholders they would craft a new, MFW-compliant compensation package to retain Musk. Maybe that would look exactly like the old package, but the mechanism of negotiating the package matters. It also has tax implications for Musk to recieve a new grant versus the old grant being ratified, but honestly that's his fault for not running the company properly in the first place.

The Chancellor's Excellent Questions

Related Stories