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> The argument is that the board giving $750mm of shareholder money to themselves is not in the interest of the shareholders for somewhat obvious reasons. I ha

by ajross 3y ago

> The argument is that the board giving $750mm of shareholder money to themselves is not in the interest of the shareholders for somewhat obvious reasons. I hate business media. FWIW, that number is really badly spun. The grants date back to 2017, when Tesla's market value was 30x lower. So at the time, the grants were more like $20-30M, hardly the kind of hyperbole-inducing sort of thing. They only look huge now because Tesla has been so successful. And thus, more to the point: arguing that you, as a TSLA shareholder, were harmed by the behavior of corporate governance during a period where you made back a three thousand percent return on your investment is... kinda batshit, honestly. Now that said, I don't know anything about the history of shareholder lawsuits or how likely this was to have been successful. It seems like the board capitulated, at least in part. So... no harm no foul, I guess.

IanCal 3y ago
>more to the point: arguing that you, as a TSLA shareholder, were harmed by the behavior of corporate governance during a period where you made back a three thousand percent return on your investment is... kinda batshit, honestly. If it turned out that they'd embezzled a hundred million would you say it's fine because the company still did well?
- ajross 3y ago
  No, because "embezzlement" is a crime all by itself. It's a kind of theft, and requires deceit. There was no deceit here -- all the evidence was in public the whole time. Fundamentally all they did here was pay themselves. Were they paying themselves too much? Well, yes, in hindsight (at least according to conventional notions of board propriety). But in the context of returns like that? I think the bar for proof of "harm" against the shareholders would be seemingly very high.
  - CPLX 3y ago
    It’s not a tort it’s a breach of fiduciary duty. The argument of harm would come into play if there was no disagreement that the money belonged to the directors, and the directors had harmed the plaintiffs in a quantifiable amount. Then that harm would justify transfer of assets from directors to plaintiff. But that’s not the argument here. The argument is that the funds did not belong to the directors in the first olace and they are being returned to their actual owner. This is based on the theory that all the money involved was the property of shareholders, and any amount of it that ended up in directors pockets has to be explained and justified. There’s no argument of “harm” being made it’s an argument of misappropriation of what isn’t theirs, and specifically that despite having a very clear legal obligation to act only in the interest of shareholders and not themselves the directors did not meet that obligation.
nonameiguess 3y ago
Being on the board of directors isn't really a job. You have power, but it's extremely part-time. People serve on many boards, usually while also having real full-time jobs. While they typically get compensated, it's usually in the area of 80k a year or so. Often, they also happen to be large shareholders, but that's because they purchased it, not had it gifted because they were on the board. If you're saying $20-30 million is not hyperbole-inducing, I suspect you're thinking more of CEO pay, but CEO is an actual full-time job.
nitwit005 3y ago
It says the grants were from 2017 to 2020. 2020 included most of the stock price growth. They filed the case in 2020, so that may have been when the compensation started to be out of line. They returned $735 million, but "agreed not to receive compensation for 2021, 2022 and 2023, and change the way compensation is calculated", so presumably the total amount saved is far higher.
dylan604 3y ago
But if the payout was in stock, how were the other stockholders hurt because of this? Are they saying the number of shares give to the board members could have been made available to the public for purchase which hurt the stockholders that could not buy them?
- HWR_14 3y ago
  The claim has nothing to do with making the shares available to the public for purchase, by the shareholders or otherwise. Issuing stock is dilutes existing stockholders. An example with much simpler numbers to make things obvious. I have company X, which you think is worth $15. Company X has 10 shares of stock. I happily sell you one for $1. You are excited because you have decided it is worth $1.50 ($15/10). I am happy because I have a dollar. Tomorrow, I issue myself 10 new shares of stock. I am still excited, more for me. You are sad because now your one share is worth only $0.75 ($15/20).
  - arein3 3y ago
    That should not be possible.
woobar 3y ago
They paid themselves ~$90M (priced at the time of grants) in a period of 3 years, When lawsuit was filed stock was just 3x-4x from the grant times. Seems to me you are spinning that number in the opposite direction for some reason. Here is complaint: https://cdn.arstechnica.net/wp-content/uploads/2023/07/tesla-detroit-shareholder-complaint.pdf https://cdn.arstechnica.net/wp-content/uploads/2023/07/tesla...
- ajross 3y ago
  FWIW, there was absolutely no attempt at spin on my part. If that $90M number was extractable from the article, I would have cited that. Clearly you agree that the $735M number that appears in the headline is incorrectly spun, right?
  - dghlsakjg 3y ago
    It says exactly how many options were issued. Pretty easy to multiply that number times the stock price at the time the deal was made.
  - woobar 3y ago
    I do not agree. Today Directors returned this much money, and headline correctly reflects this. If headline said something like “directors were paid $735M back in 2020” then it would be a spin.
    - ajross 3y ago
      They "returned" $735M, but they never "took" $735M, did they? Seems like you're digging in on the spin. Surely you agree that the distinction is relevant to the headline, right?

by ajross 3y ago

IanCal 3y ago

>more to the point: arguing that you, as a TSLA shareholder, were harmed by the behavior of corporate governance during a period where you made back a three thousand percent return on your investment is... kinda batshit, honestly. If it turned out that they'd embezzled a hundred million would you say it's fine because the company still did well?

ajross 3y ago
No, because "embezzlement" is a crime all by itself. It's a kind of theft, and requires deceit. There was no deceit here -- all the evidence was in public the whole time. Fundamentally all they did here was pay themselves. Were they paying themselves too much? Well, yes, in hindsight (at least according to conventional notions of board propriety). But in the context of returns like that? I think the bar for proof of "harm" against the shareholders would be seemingly very high.
- CPLX 3y ago
  It’s not a tort it’s a breach of fiduciary duty. The argument of harm would come into play if there was no disagreement that the money belonged to the directors, and the directors had harmed the plaintiffs in a quantifiable amount. Then that harm would justify transfer of assets from directors to plaintiff. But that’s not the argument here. The argument is that the funds did not belong to the directors in the first olace and they are being returned to their actual owner. This is based on the theory that all the money involved was the property of shareholders, and any amount of it that ended up in directors pockets has to be explained and justified. There’s no argument of “harm” being made it’s an argument of misappropriation of what isn’t theirs, and specifically that despite having a very clear legal obligation to act only in the interest of shareholders and not themselves the directors did not meet that obligation.

nonameiguess 3y ago

Being on the board of directors isn't really a job. You have power, but it's extremely part-time. People serve on many boards, usually while also having real full-time jobs. While they typically get compensated, it's usually in the area of 80k a year or so. Often, they also happen to be large shareholders, but that's because they purchased it, not had it gifted because they were on the board. If you're saying $20-30 million is not hyperbole-inducing, I suspect you're thinking more of CEO pay, but CEO is an actual full-time job.

nitwit005 3y ago

It says the grants were from 2017 to 2020. 2020 included most of the stock price growth. They filed the case in 2020, so that may have been when the compensation started to be out of line. They returned $735 million, but "agreed not to receive compensation for 2021, 2022 and 2023, and change the way compensation is calculated", so presumably the total amount saved is far higher.

dylan604 3y ago

But if the payout was in stock, how were the other stockholders hurt because of this? Are they saying the number of shares give to the board members could have been made available to the public for purchase which hurt the stockholders that could not buy them?

HWR_14 3y ago
The claim has nothing to do with making the shares available to the public for purchase, by the shareholders or otherwise. Issuing stock is dilutes existing stockholders. An example with much simpler numbers to make things obvious. I have company X, which you think is worth $15. Company X has 10 shares of stock. I happily sell you one for $1. You are excited because you have decided it is worth $1.50 ($15/10). I am happy because I have a dollar. Tomorrow, I issue myself 10 new shares of stock. I am still excited, more for me. You are sad because now your one share is worth only $0.75 ($15/20).
- arein3 3y ago
  That should not be possible.

woobar 3y ago

They paid themselves ~$90M (priced at the time of grants) in a period of 3 years, When lawsuit was filed stock was just 3x-4x from the grant times. Seems to me you are spinning that number in the opposite direction for some reason. Here is complaint: https://cdn.arstechnica.net/wp-content/uploads/2023/07/tesla-detroit-shareholder-complaint.pdf https://cdn.arstechnica.net/wp-content/uploads/2023/07/tesla...

ajross 3y ago
FWIW, there was absolutely no attempt at spin on my part. If that $90M number was extractable from the article, I would have cited that. Clearly you agree that the $735M number that appears in the headline is incorrectly spun, right?
- dghlsakjg 3y ago
  It says exactly how many options were issued. Pretty easy to multiply that number times the stock price at the time the deal was made.
- woobar 3y ago
  I do not agree. Today Directors returned this much money, and headline correctly reflects this. If headline said something like “directors were paid $735M back in 2020” then it would be a spin.
  - ajross 3y ago
    They "returned" $735M, but they never "took" $735M, did they? Seems like you're digging in on the spin. Surely you agree that the distinction is relevant to the headline, right?