Welcome to your corporate governance briefing with executive remuneration and Delaware high on the agenda this week. Before I get to the details, there are two exclusive member events ready for you to sign up to: 28 February, 4pm to 5pm GMT | Virtual | Economic outlook in 2024 A panel of experts — including Lord Willetts, president of the Resolution Foundation — will discuss what lies ahead for businesses. 26 March, 4pm to 5pm GMT | Virtual | How companies can navigate geopolitical risk FT and external experts will join forces to share their insights.
As always, the latest stories and resources are on ft.com/board-network-members. If you have any membership queries, email boardnetwork@ft.com. Feel free to forward this newsletter to other directors. They can join FT Board Network via ft.com/board-network. Thanks for reading. The Musk ruling is a reminder to mere mortals
Elon Musk’s 10-year, $55.8bn stock compensation deal blew away all comparisons. © FT montage/AFP via Getty Images After a Delaware judge voided the $55.8bn share-based pay package Tesla’s board approved in 2018 for chief executive Elon Musk, the capricious entrepreneur announced to his X followers that the company would hold a shareholder vote on transferring its incorporation from Delaware to Texas. So far, so Elon. The space-to-social-media impresario seems to have achieved the impossible in goading Delaware to intervene against him on the question of executive remuneration. That is an area the court has traditionally left to boards and shareholders to decide. (For more on Texas’s challenge to Delaware’s supremacy, do read my colleague Sujeet Indap’s column, which is featured in my FT picks below.) The underlying principle reinforced by Kathaleen McCormick, the Delaware judge, seems indisputable. Listed company boards cannot laugh in the face of governance principles and must strike hard bargains on pay and benefits with the chief executives they appoint, on behalf of the shareholders they represent. In Musk’s case, his own personal lawyer was the general counsel of Tesla at the time and Musk “enjoyed thick ties” with the directors supposedly negotiating for the car company, she wrote. Much of this trial centred on whether the milestones for the payment of stock tranches were sufficiently demanding. In the end, Tesla hit its targets and the eye-popping quantum of Musk’s deal looks as out of this world as his SpaceX ambitions: $55.8 million would have been extravagant enough, let alone a payout valued at 1,000 times that figure. It is all too easy, even in companies with less dominant leaders, for boards to give up too much to their chosen chief executives. Such one-sided negotiations often end in the award of contracts adorned with benefits and conditions that look embarrassingly generous later. So while, like so much that Musk touches, this may be a one-off case, judge McCormick deserves applause for sending a reminder to lesser mortals of what directors should be there for. Chart of the weekBeijing recently reported record exports of its “new three” industries: electric vehicles, solar energy products and lithium batteries. Trading partners in developed countries are alarmed at “the prospect of China’s low-cost imports flooding their markets and wiping out jobs in important industries such as the automotive sector and solar and wind power”. There is a wider clash too. On one side is the Chinese economic system, which closely links state policy and subsidies with “an aggressive private sector”; and “the market-orientated capitalism of developed countries” on the other. | We are all hypocrites on corporate governance | Governance: Studies of governance and shareholder returns struggle to find a definitive positive link. Let caveat emptor prevail, argues FT columnist Stuart Kirk | | | Texas is throwing down a legal challenge to Delaware | Corporate law: The Lone Star State has seen an influx of big companies, writes the FT’s Wall Street editor Sujeet Indap. Now it has a new business court to boot | | | BP unlikely to swing away from renewables despite activist campaign | Activists: A focus on the highest return investments in renewables alongside predictable shareholder payouts should contain Bluebell’s pressure, writes Lex | | | | Best from elsewhereWhy some CEOs are more likely to engage in corporate downsizing | Insead Directors of businesses that are falling short might take note of this research. It found that leaders with a weak internal attribution tendency — the trait that forms their awareness of their own responsibility for performance issues — are “less willing” to take downsizing actions in the face of poor performance. Leadership confidence index | Russell Reynolds Associates This research garnered views from various business leaders about the “effectiveness of the executive leadership team”. The overall confidence of CEOs in the executive team rose in late 2023, compared with the first half of the year. Board directors are more confident than senior executives — and that gap has widened. People problems: the human element of cyber risk | ISS Corporate This paper explores the “connections between human skills, staffing, and cyber outcomes.” While cyber security is a technology challenge, research shows that “basic personnel challenges such as poor training, understaffing, and lack of awareness contribute significantly to cyber risk.”
Any other businessThe EU’s climate chief this week warned that the bloc should not be “lured into the false narrative” that taking action on the climate emergency will damage the competitiveness of European businesses. The fighting talk from Hoekstra — who may want to take another look at the number of legs required — comes as Brussels faces a fierce backlash against its ambitious climate policies. Have words of wisdom to share? Email me. |