HomeTech Law professor says Tesla threatened to fire law firm over Musk’s huge payout

Law professor says Tesla threatened to fire law firm over Musk’s huge payout

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Law professor says Tesla threatened to fire law firm over Musk's huge payout

A prominent corporate governance professor has accused Tesla of threatening to fire one of his law firms over its objections to Elon Musk’s claim for a massive $56 billion compensation package.

Retired University of Delaware professor Charles Elson alleged in a legal filing Monday that Holland & Knight, a law firm where he has worked for nearly three decades, told him that Tesla threatened to end its relationship with the firm unless The abandoner plans to file a legal brief in a lawsuit by shareholders who oppose the controversial payment, the largest in US history.

In the filing, Elson said Tesla’s efforts to prevent his opinion from being included in the lawsuit based on claims of a conflict of interest were “extraordinary and egregious” and “a fig leaf for Musk, acting through Tesla , would try to intimidate a law.” professor by posing a serious financial threat to a law firm with which the professor had a consulting relationship.”

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“This is not the first time Tesla has threatened to fire a law firm for hiring someone who upset Elon Musk doing his job,” Elson added. He said he had resigned from the company after learning of Tesla’s threat to “protect that company from retaliation while upholding the important principle of academic freedom.”

Holland & Knight denied that it was pressured by Tesla and said it had “determined that the course of action proposed by Charles Elson was inconsistent with the company’s obligations to its client” and denied that it was coerced or threatened by Tesla.

The legal dispute is the latest to affect efforts by Tesla and Musk to boost their multimillion-dollar pay package awarded by Tesla’s board, which a Delaware judge called “an unfathomable sum” that was unfair to shareholders.

Last month, Delaware Chancellor Kathaleen McCormick found that certain Tesla directors had a “lack of independence” from Musk, that shareholders were “not fully informed,” that approval of the plan was the result of a “deal unfair” and that the amount of compensation under the plan was an “unfair price.”

Tesla then said it planned to hold a new shareholder vote to reinstate Musk’s compensation, which Elson said is not allowed under Delaware law. His proposal to file a second opinion with the court triggered, he alleges in the court filing, Tesla’s threat to leave the company.

The conflict of interest claim, he said, was invalid because he is not a Holland & Knight attorney but a consultant and was acting as a friend of the court.

Musk’s current claim for a $56 billion payment to Tesla comes as the electric vehicle maker is struggling to maintain sales. Tesla posted record deliveries of more than 1.8 million cars worldwide in 2023, but faces increased competition from other automakers and declining demand for purely electric cars. The company said it delivered 386,810 vehicles in the first three months of 2024, almost 9% less than what it sold during the same period last year.

Musk has threatened to move Tesla’s corporate listing to Texas, where the company is now headquartered, to circumvent the Delaware ruling, and threatened to manufacture products outside of Tesla unless the company comes up with a new compensation package.

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Wedbush Securities analyst Dan Ives has said the threat is “the elephant in the room” and a “huge overhang” on Tesla’s share price, which is down about a third this year.

Tesla Chairman Robyn Denholm wrote to shareholders last month saying Musk had achieved growth and met the stock value and operating goals outlined in the 2018 pay package agreement approved by Tesla shareholders.

Denholm said the Delaware court had “questioned his decision” and that Musk has not been paid for any of his work for Tesla over the past six years.

“That seems to us – and to many shareholders from whom we have already heard – fundamentally unfair and inconsistent with the will of the shareholders who voted in favor,” he added.

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