Elon Musk — the CEO of Tesla and SpaceX and owner of X, formerly Twitter — speaks during the New York Times annual DealBook summit in New York City, Nov. 29, 2023.
Michael M. Santiago | Getty Images
A Delaware judge on Tuesday voided the $56 billion pay package of Tesla CEO Elon Musk, ruling that the company’s board of directors failed to prove “that the compensation plan was fair.”
Tesla’s share price slid about 3% in after-hours trading Tuesday following news of the decision in the Delaware Chancery Court lawsuit filed by Richard Tornetta, a shareholder in the electric automaker.
The pay package that Tesla granted Musk in 2018 was the largest compensation plan in public corporate history, the judge noted, making the Tesla and SpaceX boss a centi-billionaire and the richest person on the planet.
The plan offered Musk the chance to secure 12 tranches of Tesla stock options, which would vest if the company’s market capitalization increased by $50 billion and Tesla achieved a revenue target.
“Was the richest person in the world overpaid?” asked Chancery Court Judge Kathaleen McCormick in her 200-page ruling. “The stockholder plaintiff in this derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan.”
McCormick in her decision found that Tornetta had proved that Musk “controlled Tesla,” and that the process leading to the board’s approval of his compensation was “deeply flawed.”
Musk had “extensive ties with the persons tasked with negotiating on Tesla’s behalf,” including management members “who were beholden to Musk,: among them General Counsel Todd Maron, who was his “former divorce attorney.”
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” the judge wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
“The plaintiff is entitled to rescission,” McCormick wrote.
“The parties are to confer on a form of final order implementing this decision and submit a joint letter identifying all issues, including fees that need to be addressed to bring this matter to a conclusion at the trial level,” McCormick said.
CNBC has requested comment from Musk, his lawyer and Tornetta’s attorney, on the decision.
In a tweet late Tuesday afternoon, Musk wrote, “Never incorporate your company in the state of Delaware.”
McCormick noted her ruling hinged on a finding that Musk, rather than its board of directors and shareholders, controlled Tesla, at least when it came to the question of setting his compensation.
The judge wrote, “In addition to his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan.”
Tesla and Musk’s attorneys, the court decided, “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.”
Earlier this month, Musk began angling for 25% of voting control over Tesla.
He currently owns about 13% of the company’s stock outright.
“I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned,” he wrote in a post on X, the social media site formerly known as Twitter.
LONDON — The U.K. says it wants to do its “own thing” when it comes to regulating artificial intelligence, hinting at a possible divergence from approaches taken by its main Western peers.
“It’s really important that we as the U.K. do our own thing when it comes to regulation,” Feryal Clark, Britain’s minister for AI and digital government, told CNBC in an interview that aired Tuesday.
She added the government already has a “good relationship” with AI companies like OpenAI and Google DeepMind, which have voluntarily opened their models up to the government for safety testing purposes.
“It’s really important that we bake in that safety right at the beginning when models are being developed … and that’s why we’ll be working with the sector on any safety measures that come forward,” Clark added.
Her comments echoed remarks from Prime Minister Keir Starmer on Monday that Britain has “freedom now in relation to the regulation to do it in a way that we think is best for the U.K.” after Brexit.
“You’ve got different models around the world, you’ve got the EU approach and the U.S. approach – but we have the ability to choose the one that we think is in our best interest and we intend to do so,” Starmer said in response to a reporter’s question after announcing a 50-point plan to make the U.K. a global leader in AI.
Divergence from the U.S., EU
So far, Britain has refrained from introducing formal laws to regulate AI, instead deferring to individual regulatory bodies to enforce existing rules on businesses when it comes to the development and use of AI.
This is different from the EU, which has introduced comprehensive, pan-European legislation aimed at harmonizing rules for the technology across the bloc taking a risk-based approach to regulation.
During Starmer’s election campaign last year, the Labour Party committed in its manifesto to introducing regulation focusing on so-called “frontier” AI models — referring to large language models like OpenAI’s GPT.
However, so far, the U.K. is yet to confirm details on proposed AI safety legislation, instead saying it will consult with the industry before proposing formal rules.
“We will be working with the sector to develop that and bring that forward in line with what we said in our manifesto,” Clark told CNBC.
Chris Mooney, partner and head of commercial at London-based law firm Marriott Harrison, told CNBC that the U.K. is taking a “wait and see” approach to AI regulation even as the EU is forging ahead with its AI Act.
“While the U.K. government says it has taken a ‘pro-innovation’ approach to AI regulation, our experience of working with clients is that they find the current position uncertain and, therefore, unsatisfactory,” Mooney told CNBC via email.
One area Starmer’s government has spoken up on reforming rules for AI has been around copyright.
Sachin Dev Duggal, CEO of London-headquartered AI startup Builder.ai, told CNBC that, although the government’s AI action plan “shows ambition,” proceeding without clear rules is “borderline reckless.”
“We’ve already missed crucial regulatory windows twice — first with cloud computing and then with social media,” Duggal said. “We cannot afford to make the same mistake with AI, where the stakes are exponentially higher.”
“The U.K.’s data is our crown jewel; it should be leveraged to build sovereign AI capabilities and create British success stories, not simply fuel overseas algorithms that we can’t effectively regulate or control,” he added.
However, the government only committed to establishing “appropriate legislation” on the most powerful AI models.
“The U.K. government needs to provide clarity here,” John Buyers, international head of AI at law firm Osborne Clarke, told CNBC, adding he’s learned from sources that a consultation for formal AI safety laws is “waiting to be released.”
“By issuing consultations and plans on a piecemeal basis, the U.K. has missed the opportunity to provide a holistic view of where its AI economy is heading,” he said, adding that failure to disclose details of new AI safety laws would lead to investor uncertainty.
Still, some figures in the U.K. tech scene think that a more relaxed, flexible approach to regulating AI may be the right one.
“From recent discussions with the government, it is clear that considerable efforts are underway on AI safeguards,” Russ Shaw, founder of advocacy group Tech London Advocates, told CNBC.
He added that the U.K is well positioned to adopt a “third way” on AI safety and regulation — “sector-specific” regulations that rules to different industries like financial services and health care.
The Chinese government is considering a plan that would have Elon Musk acquire TikTok’s U.S. operations to keep the app from being effectively banned, Bloomberg News reported on Monday.
The contingency plan is one of several options China is exploring as the U.S. Supreme Court determines whether to uphold a law that calls for China-based ByteDance to divest TikTok’s U.S. business by Jan. 19, the report said, citing anonymous sources.
After that deadline, third-party Internet service providers would be penalized for supporting TikTok’s operations in the country.
Under the plan, Musk would oversee both X, which he currently owns, and TikTok’s U.S. business, Bloomberg said. However, Chinese government officials haven’t yet decided on whether it would proceed, the report said, noting that the plan is still preliminary.
It’s unclear whether ByteDance knows about the Chinese government’s plans and TikTok and Musk’s involvement in the discussions, the report said. Senior Chinese officials are debating contingency plans involving TikTok’s future in the U.S. as part of larger discussions about working with President-elect Donald Trump, the report added.
A TikTok spokesperson said in an email to CNBC, “We can’t be expected to comment on pure fiction.” X didn’t immediately respond to a request for comment.
Last week, the Supreme Court held oral arguments about the law potentially banning TikTok, which President Joe Biden signed in April. TikTok’s legal team argued that the law violates the free-speech rights of the millions of users in the U.S. while the U.S. government said that ByteDance’s ownership of TikTok poses a national security risk.
With the Supreme Court appearing to side with the government, TikTok could turn to Trump, when his second term begins on Jan. 20. Trump, who favored a TikTok ban during his first administration, has since flip-flopped on the matter. Late last month, he urged the Supreme Court to intervene and forcibly delay implementation of Biden’s ban to give him time to find a “political resolution.”
Trump’s rhetoric on TikTok began to turn after he met in February with billionaire Jeff Yass, a Republican megadonor and a major investor in ByteDance who also owns a stake in the owner of Truth Social, Trump’s social media company.
Barry Diller’s IAC said Monday that its board approved the spinoff of Angi, the home improvement marketplace the company acquired in 2017.
IAC said it expects the transaction to close in the second quarter of the year. The two companies will post their respective fourth-quarter results when IAC reports on Feb. 11. Angi was founded in 1995 as Angie’s List, which went public on the Nasdaq in 2011.
As part of the spinoff, IAC CEO Joey Levin will leave his role and become an advisor to the company. Levin will also take on a new role as Angi’s executive chairman, serving as the marketplace’s senior executive alongside CEO Jeff Kip, IAC said.
“Joey Levin has been an exemplary leader of IAC, creating significant value during his nearly decade-long tenure as IAC CEO,” Diller, IAC’s chairman, said in a statement.
Upon Levin’s vacancy, IAC will operate without a new CEO, the company said. IAC’s top execs will report directly to Diller, as will publisher Dotdash Meredith, the company’s largest business. The rest of IAC’s units will report to operating chief Christopher Halpin.
IAC has previously used no-CEO structures when reorganizing its businesses. Most recently, in 2013, then-CEO Greg Blatt stepped down from the role to become chairman of the newly formed Match Group division.
“Each of IAC and Angi has a vigorous future, and I expect to remain an active participant in both,” Levin said in a statement.
As part of the spinoff, IAC shareholders will get direct ownership of Angi, IAC said.
IAC first announced it was considering a spinoff of Angi in November. At the time, the company said Angi’s revenue declined 16% year over year to $296.7 million during the third quarter. The company attributed the slide to reduced sales and marketing spend, which led to a decrease in service requests and lower acquisition of new professionals.
IAC acquired Angie’s List in a deal valued at more than $500 million. It merged the site with HomeAdvisor, creating a new public company. Angi currently has a market cap of about $770 million, and IAC owns 85% of it.
The spinoff has been under consideration for several years, but IAC postponed the effort in 2019 as it completed the Match Group transaction. Match owns dating services including Tinder, Match and Hinge.
IAC has become known for incubating businesses and spinning them off into separate companies. It’s done the same with Expedia, Ticketmaster and LendingTree, among others.