Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

A Delaware court this week voided Elon Musk's $55.8 billion pay deal with Tesla. The voiding of

these stock options erases about a quarter of Musk's current wealth.

The judgment came in response to a shareholder lawsuit launched by Richard Tornetta, who owned

nine shares in the company. The complaint argued that Tesla's board of directors breached

their fiduciary duties to investors in the company

in the way Musk's equity compensation plan was awarded.

The court ordered Tesla to cancel the stock options, meaning that the company's directors

now have to come up with a new compensation plan for Elon Musk that meet legal standards and keep

Musk who recently demanded that the board substantially increase his ownership or at least

his control of Tesla, happy.

This judgment questions the quality of governance at Tesla and it's likely that the company

will need new independent directors

who can be seen to represent shareholder interests and provide oversight of the management

of the company rather than representing Musk's interests alone. Any new compensation package

awarded to Musk to replace the voided pay deal would have to be shown to have been put together in an arm's length negotiation between independent directors and Elon Musk.

Right now it seems likely that any replacement pay deal might be a lot lower than the contract being replaced, and it might

also include provisions requiring Musk to devote more of his time to managing Tesla rather

than his other business interests. The decision can be appealed to the Delaware Supreme Court,

so it's not yet set in stone, and Elon Musk announced yesterday

that he'll seek to incorporate the company in Texas, a state that he believes could be more

hospitable to his way of doing business than Delaware.

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