Elon Musk's recent remarks exhibit a clear sense of envy towards Mark Zuckerberg's authoritative hold over Meta, a sentiment stemming from a long-standing rivalry between the two tech moguls.
This week, Musk expressed discontent with the structural dynamics at Meta, particularly Zuckerberg's substantial voting control, while simultaneously seeking to consolidate his influence over Tesla.
Musk proposed an ultimatum to Tesla's board on Monday, demanding a 25% voting share in the company to continue advancing AI development at the electric-car manufacturer. Currently, Musk holds approximately 13% of Tesla, a reduction from his previous 22% stake, which diminished following his Twitter acquisition in 2022.
One method to achieve this increased control could involve a dual-class stock structure, a strategy not unusual in the corporate world. This approach would enhance the voting power of Musk's existing shares without necessarily increasing his share count. However, Musk has been advised that implementing such a structure post-IPO in Delaware, where Tesla was listed in 2010, is not feasible.
In contrast, Zuckerberg enjoys a significantly more commanding position at Meta, thanks to supervoting shares that offer 10 votes per share. This dual-class stock structure, granted to Zuckerberg and a select group of Meta executives and directors, means that despite owning only about 13% of Meta's shares, Zuckerberg controls over 50% of the voting power, effectively giving him veto power over other shareholders.
Musk's inability to replicate this structure at Tesla seems to have aggravated him, as he laments the disparity in governance structures between pre-IPO and post-IPO companies. "It's weird that a crazy multi-class share structure like Meta has, which gives the next 20+ generations of Zuckerbergs control, is fine pre-IPO, but even a reasonable dual-class is not allowed post-IPO," Musk commented on X, formerly known as Twitter.
While Musk has previously critiqued Zuckerberg's dominion over Meta, his current ambitions at Tesla suggest a desire for a significant, yet not absolute, level of control. "If I have 25%, it means I am influential, but can be overridden if twice as many shareholders vote against me vs for me," Musk explained on X. "At 15% or lower, the for/against ratio to override me makes a takeover by dubious interests too easy."
Tesla has not responded to requests for comment regarding Musk's proposal. This request from Musk has raised eyebrows among some Tesla shareholders. Financial experts deem Musk's recent unconventional behavior, drug use allegations, and the negative impact of his Twitter acquisition on Tesla's stock as indicators of potential risk. Chester Spatt, Carnegie Mellon University finance professor and former SEC Chief Economist, critiques Musk for his lack of regard for external shareholders, whose capital is vital for realizing his vision.
Musk, who does not draw a salary from Tesla, is compensated through a unique package based on the company's financial milestones. Set in 2018, this plan awards Musk stock options upon achieving specific targets, with Tesla claiming to have met all 12 milestones as of 2023.
Despite the unusual nature of Musk's compensation, experts like Joshua Tyler White, former SEC financial economist and Vanderbilt finance professor, believe such an arrangement might be necessary to maintain Musk's focus on Tesla, given his involvement in multiple ventures like SpaceX, X, and The Boring Company. "Musk's so wealthy at this point that money doesn't really motivate him, power does," White observes.
Musk's request for a 25% stake, while less commanding than Zuckerberg's position at Meta, reflects his desire for increased influence. However, experts like UC Berkeley's Ofer Eldar note that implementing a dual-class structure post-IPO, as Musk wishes, is highly unorthodox and almost impossible.
The complexity of Musk's request signals potential underlying issues. Anat Alon-Beck, corporate law professor at Case Western Reserve University, interprets Musk's move as either anticipation of an unfavorable outcome in his ongoing Delaware legal case or pressure from an activist investor. Erik Gordon, a business professor at the University of Michigan, suggests Musk's concerns might be fueled by increased shareholder and public criticism, especially following Sam Altman's departure from OpenAI.
In summary, Musk's pursuit of greater control at Tesla highlights his envy of Zuckerberg's position at Meta and underscores the challenges of altering corporate governance structures in established public companies.
