Delaware Chancellor Kathleen McCormick was the talk of the corporate world when she ruled last month that Tesla CEO Elon Musk’s $56 billion mammoth pay package resulted from overly close ties with hand-picked directors.
Chancery is now facing a decision on a life-changing payday for lawyers who prevailed in the case and want an eye-popping $6 billion for their efforts.
That figure may be in keeping with the percentage of legal fees paid in such cases, but the $6 billion, like Musk’s rejected pay package, is mind-numbingly large.
The $6 billion amounts to about double the estimated annual revenues of Skadden Arps, a corporate powerhouse firm with an office in Wilmington.
Reuters crunched the numbers and calculated that the case cost lawyers about $39 million, a lot of money but it’s a drop in the ocean compared to the $6 billion on the table
Earlier, Smyra native McCormick had been left to decide the case when the celebrity CEO pressed for a trial rather than the usual settlement in the suit which named a heavy metal musician with a few shares of Tesla stock as the plaintiff.
Corporate law firms have been sending out a flood of guest pieces on the case and its implications for corporate pay. My take is that Musk’s pay package is essentially an attempt to gain a bigger share of Tesla while still selling off stock to prop up Twitter and other ventures.
Many praised Chancery’s decision as a rare pro-shareholder victory in a court known for largely siding with corporations and CEOs.
Others argued that Chancery had no reason to reject a pay package for a genius CEO who made Tesla into more than a car company with technology that will change lives. Musk indicated that the cutting-edge tech would be pulled away from Tesla if a new pay package did not meet his demands.
The verdict is out on his overall genius as Tesla cuts prices to spur demand for its battery-electric vehicles, which have not seen a redesign in years. It gave Tesla room to drive down the cost of electric vehicles, but it also seems to signal the need for Musk to use some of that $56 billion pay package to reinvest in the car company or buy back stock.
Musk says big things are coming down the road, but we’ve heard that story before. For example, the long-touted and newly introduced Cybertruck has emerged as a niche vehicle and vanity project that will will remain outside the mainstream
Meanwhile, long-time Chancery Court critic and TransPerfect CEO Philip Shawe quickly criticized the big legal bill. Shawe continues to dispute fees arising from the sale of TransPerfect. Shawe prevailed buying a 50% stake from his estranged partner but has spent big sums in claiming that the ongoing fees are excessive. His frequent target is the above-mentioned Skadden Arps.
Like Musk, who quickly incorporated one of his companies to CEO-friendly Nevada, Shawe moved TransPerfect in the Siver State and continues to criticize Chancery. He is joined by an organization known as Citizens for Judicial Fairness, which arose from the disputed sale of TransPerfect.
Shawe offered the following:
“$6 “billion is greater than the GDP of many countries—and here is a Delaware judge contemplating paying that for a lawsuit with modest effort and a nominal plaintiff. Knowing Delaware, it may just get approved – or make $1 billion look reasonable—it is not. In any state with transparency and the rule of law, this would be laughable. In Delaware, it’s business as usual.”
Shawe has a big axe to grind when it comes to Delaware, but this time around, he is on target in pointing out the outrageous possibility of a $6 billion or even $1 billion payday that would result from an equally outrageous compensation package. – Doug Rainey, chief content officer.
