FX168 Financial News (North America) News: Tesla CEO Elon Musk's $56 billion compensation plan has been ruled invalid by a Delaware court once again, marking a new chapter for the controversial compensation plan. Meanwhile, one of Tesla's largest individual shareholders, Liao Kaiyuan, recently announced a reduction in shareholding, claiming concerns about the future risks of Tesla. This series of events has brought market focus on Tesla's governance and shareholder dynamics.

Court rejects compensation plan once again.

On Monday (December 2), Judge Kathaleen St. Jude McCormick of the Supreme Court of Delaware rejected Tesla lawyers' request to overturn the January ruling. The judge determined that Musk manipulated this huge compensation plan through false negotiations in 2018, and the new evidence provided by Tesla was not sufficient to change the judgment.

Previously, the Tesla board of directors argued that shareholders who reapproved the compensation plan in June had received comprehensive disclosure. However, the judge pointed out that this did not address the core issues mentioned in the ruling.

Musk is currently planning to appeal to the Supreme Court of Delaware, which is his only legal recourse.

Major shareholder Liao Kaiyuan reduces shareholding.

On the eve of the ruling, one of Tesla's largest individual shareholders, Liao Kaiyuan, announced that he is gradually reducing his Tesla shares and investing the proceeds in short-term US treasury bonds. Liao Kaiyuan stated on the social media platform X that he is cautious about the future performance of Tesla stocks and warned of the risk of a potential similar to the 1929 stock market crash in the US economy.

(Source: X)

He said, 'I am no longer fully invested in Tesla. I am selling Tesla stocks and buying 3-month US Treasury bills. The situation of US government debt, budget deficits, and trade deficits makes me need to hedge the risks of the investment portfolio.'

Liao Kaiyuan used to be a staunch supporter of Musk. Since 2019, he has been continuously increasing his shareholding in Tesla stocks. As of May 2023, he holds 27.7 million shares, accounting for approximately 0.9% of the company's shares. Tesla stocks make up a major part of his $13.5 billion wealth. However, in recent years, Liao Kaiyuan has increased his criticisms of Musk, especially after Musk acquired the social media platform X, Liao Kaiyuan believes this has affected Tesla's operation.

Market and Shareholder Dynamics

Liao Kaiyuan's recent shareholding reduction has attracted market attention. Analysts point out that this signifies a significant shift in one of Tesla's most important individual shareholders' attitudes towards the company's prospects. Previously, Liao Kaiyuan had opposed Musk's compensation plan in shareholder voting, laying the groundwork for this change in position.

Analyst Adam Jonas of Morgan Stanley pointed out that Tesla's market cap surged in 2023, doubling the value of Musk's existing compensation plan from $56 billion to $101.4 billion. Analysts believe that if Musk attempts to devise a new compensation plan, he will face even greater opposition from shareholders, including Liao Kaiyuan.

Tesla's governance issues under scrutiny again

Tesla warned in a statement of appeal that if the ruling is not overturned, it would mean that the governance of the Delaware-based company would be controlled by judges and plaintiff lawyers, rather than shareholders. However, legal experts generally believe the ruling is reasonable and upholds the interests of investors.

University of Delaware corporate governance expert Charles Elson stated that the close relationship between Tesla and Musk has made the controversy over compensation plans a focal point of Delaware's anti-conflict of interest law. He pointed out, "Allowing such compensation plans to pass will undermine investors' trust in Delaware law."

The ruling on Tesla's $56 billion compensation plan and major shareholder Liao Kaiyuan's shareholding reduction behavior reflect the dual challenges of internal governance and external market trust. The future balance of Tesla's compensation plans between corporate governance and shareholder rights remains an unknown, while Liao Kaiyuan's holding stance also brings more uncertainty to the market. With the company planning to appeal and potential ongoing shareholder opposition to the compensation plan, Tesla's governance issues may become a focus of future attention.

At the close on Tuesday, Tesla's stock price fell by 1.59%.

(Source: Google)