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By Sharon Kimathi, Energy and ESG Editor, Reuters Digital
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Hello!
The court verdict on Elon Musk’s compensation is the focus of today’s newsletter.
A Delaware judge tossed out Musk’s record-breaking $56 billion Tesla pay package, calling the compensation granted by the electric vehicle maker’s board “an unfathomable sum” that was unfair to shareholders.
Shares of Tesla fell 2.2% on Wednesday, and some investors seized on the ruling in hopes it might prompt Tesla to overhaul its governance.
The Tesla board has been criticized as failing to provide oversight of its combative, headline-making CEO, who has fought regulators and led several other companies at the same time.
Also on my radar today:
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Tesla CEO Elon Musk at Manhattan federal court on his fraud settlement with the Securities and Exchange Commission (SEC) in New York City, U.S. REUTERS/Brendan McDermid
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An investor named Richard Tornetta sued Musk and several Tesla directors in 2018, claiming Musk’s pay package was unfair.
While Tornetta held just nine Tesla shares, the deal had also been criticized by major pension fund California State Teachers’ Retirement System (CalSTRS) and proxy advisory firms, who viewed the deal as too large.
Musk’s 2018 pay package gave him stock grants worth around 1% of Tesla’s equity each time the company achieved one of 12 tranches of escalating operational and financial goals.
Tornetta argued that shareholders were not told how easily the goals would be achieved when they voted on the package.
Tornetta claimed the pay was not necessary to incentivize Musk to achieve success for Tesla, as Musk already owned around 22% of the automaker’s stock.
Even without the pay package, Musk benefited from his 22% ownership share of Tesla’s stock at the time the package was adopted in 2018. Since then, Tesla’s stock has risen about 10-fold, raising the value of his stake by more than $100 billion.
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The Delaware judge, Chancellor Kathaleen McCormick rescinded Elon Musk’s record $56 billion compensation from Tesla.
The ruling, which can be appealed, nullifies the largest pay package in corporate America. The judge found the share-based compensation was negotiated by directors who appeared beholden to Musk, currently ranked by Forbes magazine as the world’s richest person.
“Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” wrote McCormick.
“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’,” she said in her 201-page opinion.
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‘Lack of independence’ on the board
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McCormick wrote that many of the directors on Tesla’s board, including current members Kimbal Musk, Elon Musk’s brother, and James Murdoch, son of media tycoon Rupert Murdoch, lacked independence because of their close personal ties with the CEO.
Two of Tesla’s other current directors, Robyn Denholm and Ira Ehrenpreis, showed a lack of independence in the pay decision, she said.
The ruling comes as Tesla is preparing another round of compensation negotiations with Musk.
Ross Gerber, president and CEO at Gerber Kawasaki Wealth & Investment Management and a Tesla investor, told Reuters the ruling showed the company needed to replace at least three directors with independent board members before it can negotiate a new pay package for Musk.
Click here for a look at some of the largest corporate compensation agreements based on the estimated value of the equity awards on the date the awards were granted, as compiled by Equilar, which specializes in corporate pay analysis.
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Japan Airlines’ current president Yuji Akasaka and new president Mitsuko Tottori attend a press conference in Tokyo, Japan. REUTERS/Kim Kyung-Hoon
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- Gender equality: Mitsuko Tottori’s appointment as Japan Airlines’ next president makes her something of a rarity in Japan – a female head of a well-known company. While Japanese companies have rapidly lifted the number of female board members in recent years, most are outside directors. Change from within is slower in coming. That ascent from cabin to boardroom is notable in a country where advancement opportunities are still limited for women: Japan’s gender wage gap is the worst among the Group of Seven (G7) countries. Click here for a Reuters feature on her rise to the top.
- Climate activist Greta Thunberg arrived at a London court on Thursday to face trial on a public order offense over a protest outside an oil and gas conference last year.
- California braced for a pair of approaching Pacific storms expected to drench much of the state in heavy rains that could trigger widespread flooding while also helping bolster longer-term fresh water supplies. Click here for a Reuters explainer on what California’s atmospheric rivers mean for water and snowpack levels.
- Water watch: Frustrated Mexico City residents have been protesting weeks of water shortages, with officials warning of “unprecedented” low levels in a main system that supplies millions of people.
- Norway, a top donor to the U.N. agency for Palestinian refugees (UNRWA), is urging countries that have cut funding to the agency to consider the consequences of their actions on the population in Gaza, its foreign minister told Reuters.
- French farmers: The French government sent armored vehicles to protect a wholesale food market in Paris, in a sign of escalating tensions as farmers blocked highways in France and Belgium and protests spread elsewhere in Europe.
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Phil Bloomer, executive director at international non-profitBusiness & Human Rights Resource Centre, shares his thoughts on corporate responsibility and inequality:
“Leading companies are beginning to get their house in order and demonstrate that building public trust by creating shared prosperity and avoiding abuse is both profitable and a moral imperative.
“But the many laggard companies need to urgently change key aspects of their business model if they seek stable and cooperative investment environments with communities and workers. Their long-term profits, and the fate of our planet, depend on decisive action.
“Unsustainable inequality is, arguably, the single greatest obstacle to a fast transition.
“Well-designed clean energy transitions will ensure communities and workers feel direct benefit and lend public trust.
“But without responsible business conduct, there is a profound danger that the distribution of benefits are skewed to the wealthy and powerful, and the costs and risks to the majority and vulnerable.”
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Big Tech and media companies in the United States have kicked off 2024 with fresh plans to cut jobs, signaling the spate of layoffs seen last year will likely continue as firms navigate persistent economic uncertainty.
Click here for some of the job cuts announced by tech and media companies in January.
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Recycled silver is produced at the MKS PAMP refinery in Castel San Pietro, Switzerland. Tom Lindboe/Pandora/Handout via REUTERS
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Sustainability in jewelry steals the spotlight today as Pandora, the world’s largest jeweler by amount of products sold, has stopped using mined silver and gold and now only manufactures with recycled precious metals, which require less energy to produce.
The Danish company, known for its $65 to $95 charm bracelets, buys around 340 tonnes of silver and one tonne of gold every year. Its supply chain generated 264,224 tonnes of CO2 in 2022, according to its annual report.
Using recycled instead of newly mined metals cuts Pandora’s indirect CO2 emissions by around 58,000 tonnes annually, said Mads Twomey-Madsen, its senior vice president of communications and sustainability.
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- Feb. 2, Paris, France: Protesting farmers will continue their ‘siege’ in Paris by blocking all major highways.
- Feb. 2, Geneva, Switzerland: The United Nations Committee on the Rights of the Child adopts recommendations on Russia, including regarding its deportation of Ukrainian children to Russian soil.
- Feb. 2, Manila, Philippines: A United Nations Special Rapporteur, Irene Khan, will assess a range of issues related to the right to freedom of opinion and expression, including the legal and policy framework and the safety of journalists, human rights defenders and civil society actors in the country.
- Feb. 2, Madrid, Spain: The country’s women’s soccer team coach Montserrat Tome, testifies before the High Court in the ongoing Rubiales-Hermoso kiss case in Madrid. A High Court judge proposed that ex-soccer boss Luis Rubiales should stand trial over the kiss he planted on player Jenni Hermoso’s lips after Spain’s victory in the Women’s World Cup, saying that the investigation showed the kiss “was not consensual and was a unilateral and surprising initiative.”
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