Tesla once paid CEO Musk $3 million: to purchase directors and executives liability insurance
According to Tesla’s latest regulatory submission on Wednesday The filing documents show that the company once paid its CEO Elon Musk US$3 million to purchase a 90-day important commercial insurance that would free the company’s directors and executives from certain liabilities. Legal fees. The filing stated that Tesla has ended this controversial arrangement and obtained this insurance in a more traditional form.
In April of this year, Tesla told its shareholders that the company would suspend the payment of “directors and executives’ liability insurance” within a year, but instead would pay Musk personally a sum of money to use To bear the cost of legal defense, settlement or judgment of company executives or board members. At the time, Tesla stated in a document that the company would adopt this approach because the premiums were “disproportionately high.” But legal experts said that this extremely unusual move may cause a conflict of interest.
The agency consultant Glass Lewis opposed the re-election of Tesla Chairman Robin Denholm and planned to abandon the third-party “director and executive liability insurance” in response. Subsequently, Tesla’s board of directors said it would try to replace the previous liability insurance policy, and Lewis agreed.
Extremely unusual behavior
The filing documents show that as of June 2020, there is an agreement between Musk and Tesla, and the content is 90 days by him. “Directors and Executives Liability Insurance” provides “indemnity insurance” totaling up to 100 million US dollars. Generally speaking, “indemnity insurance” can provide protection for a company and its board members and executives, so that they do not have to pay for their own defense, settlement, or judgment in the face of costly litigation.
Tesla is facing high-risk lawsuits due to various issues, including the long-term performance of its car batteries and the decision to acquire solar supplier SolarCity.
The document stated that in return, Tesla “agreed to pay a total of 3 million US dollars to the company’s CEO” and stated that this rate is based on “market-based premiums” and will be proportional within 90 days Calculate and then discount by half. Earlier, Tesla also disclosed information that the company will pay Musk at least $1 million in “directors and executive liability insurance.”
Tesla stated that the agreement has now been terminated and the company “turned to bundle the liability insurance policies of directors and executives with third-party airlines.” So far, Tesla has not specified which airline operators cover such insurance for its board members, nor has it stated that the company will pay for the future “directors and executives liability insurance” policy. How many.
This move means that Musk and the Tesla board of directors who should have supervised him may have a conflict of interest.
“It is extremely unusual to replace the insurance policies of directors and executives with personal guarantees of executives for any period of time.” Kevin Hirzel, managing member of Hirzel Law in Detroit Said. “If the CEO guarantees payment under a compensation agreement, it may create a conflict of interest and threaten the independence of the board of directors.” He also added: “Tesla’s board of directors obtains traditional directors and senior management from a third-party insurance company. Personnel liability insurance policy, this is the right approach.”
University of Delaware’s Professor of Corporate Governance Charles Elson also believes that Tesla has restarted to provide company directors and executives with This kind of insurance is a good thing. He said: “I think it is not advisable for the CEO to compensate the company and the directors, because under this relationship, the contact between the directors and the CEO is too close. The board has the right to supervise the CEO, and this contact will make It is more difficult for board members to conduct good oversight on behalf of all shareholders.”
Elson pointed out that using $3 million to buy insurance worth $100 million is not a trivial amount. He believes that looking forward to the future, Tesla should be able to prove that the company has sought other options during this transition period, and that the amount paid to Musk is fair, and will explain in more detail why the company failed to come earlier. Obtain third-party insurance policies.
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