TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Elon Musk case a wake-up call for Indonesian corporate law
Indonesia should not lag behind in developing its corporate laws just because Singapore is currently the “Delaware of Asia”.
Change text size
Gift Premium Articles
to Anyone
Share the best of The Jakarta Post with friends, family, or colleagues. As a subscriber, you can gift 3 to 5 articles each month that anyone can read—no subscription needed!
Center of attention: Tesla Inc. CEO Elon Musk (third right) takes questions from the press at the Sumerta Klod community health center in Denpasar, Bali, on May 19, 2024. (Antara/Muhammad Adimaja)
A
Delaware court in January, 2024 overturned Tesla CEO Elon Musk’s massive compensation package, citing deep flaws in the approval process. This equity compensation plan, approved by 73 percent of Tesla shareholders in 2018, offered Musk stock options if he reached specific targets – targets many considered unattainable.
Conversely, if Musk failed, he would receive no salary, cash bonuses or equity. By late January 2024, the package was valued at US$55.8 billion and by mid-June at $46 billion, making it the largest pay package in history.
Indonesian lawyers and legal scholars might wonder why a compensation package approved by a supermajority of shareholders in a publicly held corporation could be overturned by a court, especially when shareholders were informed about the transaction. Unfortunately, US corporate law, particularly Delaware corporate law, differs from Indonesian law.
Under Delaware corporate law, decisions by the board of directors or shareholders (especially in situations where there is a conflict of interest, affiliated transactions or lack of independence) are subject to an “entire fairness review” – a concept that arguably does not exist in Indonesian law.
Given that the compensation plan involved a transaction between Tesla and Musk (Tesla CEO and a controller of Tesla) where Tesla gives Musk stock option, the Delaware court applied this review to both the board’s and shareholders' decisions.
The concept of entire fairness has two basic aspects: fair dealing and fair price. Under the fair dealing aspect, the court evaluates the timing, initiation, structuring, negotiation, disclosure to directors and the approval process by directors and stockholders. Under the fair price aspect, the court also assesses the economic and financial considerations. In short, without getting too technical, the Delaware court concluded that the process behind Tesla’s package was deeply flawed.
This decision has garnered both support and criticism. Musk, shortly after the court decision, declared war on Delaware on social media platform X: “Never incorporate your company in the state of Delaware”.
