Tesla, activist board nominees

Summary

Podcast Summary: Shareholder Primacy – "Tesla, activist board nominees"

Host: Free Float Media Inc.
Guests: Mike Levin (Activist Investor), Ann Lipton (Professor, University of Colorado Law)
Date: January 7, 2026

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Overview

This episode of Shareholder Primacy dives deeply into two major themes:

• The recent and surprising closure of the high-profile Tesla/Elon Musk compensation litigation and its broader implications for corporate governance, Delaware law, and executive power.
• A practical look into how activist investors recruit director candidates for proxy contests in a modern governance landscape, including the evolving challenges and strategies in building effective activist slates.

Levin and Lipton bring their trademark blend of legal and financial expertise, candid humor, and real-world stories to unpack these complex, dynamic subjects.

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Key Discussion Points & Insights

1. The Tesla/Musk Pay Case: What Happened and What It Means

(Starts at 02:41)

a. Background and Case Summary

• The 2018 Tesla pay package would have awarded Elon Musk options initially worth $50 billion (now nearly $100 billion) if he hit ambitious growth targets.
• Former Delaware Chancellor Kathaleen McCormick ruled that Musk “controlled the board,” dictating terms to his own benefit, and that shareholders “weren’t given full information.” ([03:46])

  “He basically dictated the terms of his own pay package. It was never really independently considered by the board. And when the shareholders voted on it, they weren’t given full information.”
  — Ann Lipton [03:46]

b. Legal Remedy Ordered

• Chancellor McCormick rescinded the grant: “She basically took it all away,” returning the parties to pre-2018 status ([05:16]).

c. Political Fallout & Delaware's Reaction

• Musk retaliated by moving Tesla’s incorporation from Delaware to Texas, igniting a broader “rebellion” by companies upset at Delaware’s increasingly managerial-critical courts ([06:22]).
• Delaware responded with SB21, a statute reducing court review of conflicted transactions—but not applying retroactively to this case ([07:08]).

d. Delaware Supreme Court’s “Mysterious” Reversal

• The Supreme Court’s dilemma: Unable to credibly uphold, or reverse, McCormick’s factual findings without political fallout ([08:06] – [08:43]).

  “If they got into the facts ... and they overruled her and said, ‘Oh no, McCormick was wrong, this board was totally independent’ ... it would have made them a laughingstock.”
  — Ann Lipton [08:06]

• The Court “said absolutely nothing, but still gave Musk his payback”—reversing on pure technicality by finding that ‘rescission’ as a remedy was not legally available ([08:53]–[09:30]).

  “They didn’t even acknowledge that the question [of fiduciary breach] was before them.”
  — Ann Lipton [10:01]

e. Lawyerly Technicalities & Impact on Future Cases

• Instead of ruling on whether Musk committed a fiduciary breach, they claimed rescission was infeasible because the parties can’t literally be returned to their 2018 positions ([10:17]).
• The court noted other remedies (e.g., disgorgement) were possible, but plaintiffs hadn’t asked for them—so “they get bupkis” ([12:12]).
• The decision was per curiam—unsigned—unusual for such a significant, globally-watched decision ([15:19]).

  “This is a case that had global attention and they still issued their ruling per curiam. No justice put their name on it. It's like they're not even trying to hide how much politics is playing a role.”
  — Ann Lipton [16:37]

f. Attorney Fees Conundrum

• Despite not affirming a breach or damages, the Court awarded $60 million in attorney’s fees “to make this go away” ([13:52]).

g. Political and Governance Implications

• The hosts express disappointment at the precedent: Delaware's readiness to be “strong-armed” by corporate threats ([15:10]–[15:19]), and the wider societal consequences of awarding Musk such immense power based on corporate pay ([16:47]).

  “Handing Musk $100 billion ... gives him public power. It gives him political power. It gives him global political power ... That’s the world we live in.”
  — Ann Lipton [16:47]

h. Notable Quotes

• “If I’d been strong-armed into giving Musk that kind of political power, I wouldn’t put my name on that decision either.”
  — Ann Lipton [17:39]

• “What it really in some ways says is Delaware can be threatened and the court can be threatened.”
  — Ann Lipton [15:15]

i. Final Musk Pay Status

• Musk gets to keep his 300 million options (not exercised yet), and Tesla avoids alternate, more expensive pay packages ([18:40]–[19:25]).

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2. How Activists Recruit Director Candidates for Board Contests

(Starts at 21:20)

a. Activist Board Recruitment: The Stakes and the Changes

• There’s a surge in activist fights—seven proxy contests pending as of Jan 1—and the process for recruiting nominees is increasingly sophisticated ([21:32]).
• The balance has shifted: It’s no longer “career suicide” to be on an activist slate, given activism’s normalization ([24:39]–[25:49]).

b. The Realities of Activist Board Service

• Contrary to myth, activist situations require significantly more work than traditional board service—turnarounds, strategic reviews, CEO recruitment ([24:24]).
• Still, the compensation (S&P 500 boards: $200k–$400k/yr) is nontrivial ([22:52]).

c. Modern Candidate-Sourcing Strategies

1. Start with the Activist Investor

   • Having the activist’s own PM or partner on the slate signals seriousness:

     “If you’re willing to spend the few hundred hours a year that’s required ... that sends a really important message.”
     — Mike Levin [28:06]

   • Downside: May not appear independent; some PMs prefer not to, due to trading restrictions or optics ([29:25]–[30:28]).

2. Ask Other Shareholders

   • Engage fellow large holders for suggestions, which can help “lock in their support” and build pre-contest alliances, while taking care to avoid forming a SEC-defined ‘group’ ([30:28]–[31:49]).

3. Engage Search Firms

   • Specialized search firms now serve activists, offering professionalism and access to untapped director pools ([32:16]).

4. Personal and Professional Networks

   • The “call your friends” method remains, but is risky for expertise gaps or ‘capture’ by incumbent boards ([33:36]–[34:25]).

5. Diversity and Executive Networks

   • Expanding director pools now include women and minority director networks, making it easier to source strong, diverse candidates ([34:25]–[36:18]).

d. Universal Proxy's Impact

• Universal proxy cards (each candidate individually listed and voted upon, not just slates) mean activists must match candidates' skills closely to targets (“incumbent vs. challenger”) and company-specific needs ([36:18]–[37:32]).
• The process is now “much more critical than ever,” with more intentional, months-in-advance planning ([36:25]–[37:32]).

e. Memorable Moment: Would Ann Join a Board?

• Mike notes the scarcity of legal expertise on boards and pitches Ann for directorships, prompting laughs ([37:48]):

  “Having an academic law professor on a board could be kind of good. So everybody who’s following, if you’re looking for directors, you know where to find her.”
  — Mike Levin [38:36]

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Notable Quotes and Memorable Moments

• On Delaware’s weak-kneed response:
  “And that’s disappointing. That’s sad.”
  — Mike Levin [15:15]
• On per curiam dodge:
  “It’s like they’re not even trying to hide how much politics is playing a role.”
  — Ann Lipton [16:37]
• On the magnitude of Musk’s power:
  “Handing Musk $100 billion ... gives him global political power.”
  — Ann Lipton [16:47]
• On current board recruitment:
  “Serving as a board candidate for an activist investor is also become a little more acceptable ... but it’s not quite the career ender that it used to be.”
  — Mike Levin [25:49]

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Timestamps for Key Segments

• Tesla/Musk Pay Case Begins: [02:41]
• McCormick’s Ruling Recap: [03:46]
• Political Fallout Detailed: [06:22]
• Supreme Court’s Dilemma/Decision: [08:06], [08:53], [10:01]
• Attorney Fees Discussion: [12:32]
• Per Curiam Explanation & Implications: [15:19]–[16:37]
• Big Picture: Executive Power: [16:47]–[17:39]
• Musk Pay Package Results: [18:40]–[19:25]
• Transition to Board Recruitment: [21:20]
• Activist Board Recruiting (all strategies): [21:32]–[37:47]
• Universal Proxy Impact: [36:18]
• Offer to Ann for Board Roles: [37:48]
• Episode Wrap-Up: [38:44]

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Tone and Style

The hosts were conversational, wryly critical, and detail-oriented. They combined legal nuance, practical investing wisdom, and candid views on the state of U.S. corporate governance. The mood was sometimes exasperated but always insightful, mixing policy analysis with real war stories from activist investing.

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Summary prepared for listeners seeking a comprehensive understanding of the Tesla pay case’s final resolution and practical, up-to-date insights on activist board candidate recruitment.

Transcript

[A]

Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal worlds intersect and collide in real life. We are back here in 2026, a new year, Anne and me. Anne, of course, is law professor at University of Colorado who teaches and researches securities and business law, and she mines the legal end of the podcast.

[B]

And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.

[A]

Happy New Year, Anne.

[B]

Happy New Year, Mike.

[A]

Was it quiet? Was it lively? Did you go to a rave on New Year's Eve?

[B]

I did not go to a rave on New Year's Eve. I did not even stay up till midnight on New Year's Eve. It was cold and boring.

[A]

We made it to midnight, but we were just at a party at our kid's house, so. And we. We kind of left it, I think 1202 after we said. And I think we mentioned, you know, we're new grandparents. So we got. So we spent some time with the kid and enjoyed a little bit of New Year's, but otherwise it was pretty quiet. So.

[B]

Yeah.

[A]

And I'm guessing yours was, too.

[B]

Eh, mine was pretty quiet, yes.

[A]

All right, great. Well, let's. Let's talk about a couple of subjects today. We need to catch up on Tesla, sadly.

[B]

Yes.

[A]

Sadly or whatever. I think we have what we can describe as some sort of closure, at least on the Musk Pay case. There's many strands to this, but the Musk Pay case, we can kind of close up.

[B]

We can close that one up.

[A]

And I think it closed up in a way that I think it's fair to say we didn't exactly anticipate.

[B]

No.

[A]

Or didn't see coming. All right, so. Yeah, so we'll talk about that

[B]

and we'll follow up to stuff we've talked earlier about when we talked about what activists are up to right now. So now we're going to look at how activists actually recruit director candidates for a proxy contest.

[A]

Yes, that's sort of going on.

[B]

I keep waiting for someone to call me, but surprisingly.

[A]

Oh, we could do that. I didn't know you wanted to do that.

[B]

Oh, oh, I don't think anybody wants to know. That would be very poor fit.

[A]

Well, I mean. And assuming your deans would let you.

[B]

They let me. It's just. I think that would be a problem.

[A]

Oh, I'll have to keep that in mind. Mind. Oh, that'll be interesting. There'd be some. There'd be some activists that Would love to talk to you, but we'll let. Let's keep that in mind when we get to that subject a little later. But for now, we have to remind listeners about what our mailbag.

[B]

We have an email address. Please feel free to reach out if you have stuff that you. Questions for us or stuff you want us to talk about. Shareholder privacy. One word at Free Float llc.

[A]

Right. All right, let's plunge into it. Let's plunge into Tesla, our favorite case study for all things governance and securities law and other stuff. And it came up again, really, at the end of last month. This almost was like, kind of got snuck up.

[B]

September 19th, which I'll remember because it was also the date that the Epstein files were supposed to be released.

[A]

Oh, interesting one.

[B]

Is distracting.

[A]

Yeah, I think, well, if they were hoping that the Tesla Delaware Supreme Court ruling would kind of overshadow the Epstein files, I think, and take attention away,

[B]

it might have been. Actually, I think it might have been the other way around.

[A]

So anyway, so there's a couple final decisions that have been reached about that pay package. Then just to remind everybody, that was the one from 2018 that was going to grant him, you know, 50 originally, 50 some billion. Now it's probably closer to $100 billion worth of stock. Captioned Tornetta v. Musk. So let's kind of recap that and sort of see how that lead finished out, shall we?

[B]

Yeah. So, yeah, so it was going to, as you say, it was supposed to award him all this stock if he managed to meet these goals, the most ambitious of which had to do with increasing Tesla's market capitalization. And he was able to do that. He increased Tesla's market capitalization extraordinarily by from 50 billion to around 650 billion. But after a trial, Chancellor McCormick held that this pay package actually violated the board's fiduciary duties to Tesla. That because Elon Musk controlled the board, that's what she found. They were beholden to him. So he basically dictated the terms of his own pay package. It was never really independently considered by the board. And when the shareholders voted on it, they weren't given full information. And because neither the board nor the shareholders had really considered this pay package, there was really only one person left to decide whether it was fair to the company, and that was the court.

[A]

It was Chancellor McCormick.

[B]

That was Chancellor McCormick. That's how it works. That's how it did work. And she held that it wasn't fair, partially because Musk didn't need that kind of award. To be incentivized to increase Tesla's market cap. He already owned like 20% of the company. He didn't need an additional incentive to bring them.

[A]

And that was kind of my thing as a Tesla shareholder, is that sort of the marginal additional benefit to Tesla shareholders of this stock was asymptotically approaching zero because he was gonna continue to work as hard or not work as hard as any.

[B]

And that was also what she found that he had said, like he wasn't planning on leaving Tesla, he wasn't going anywhere. This wasn't necessary. Anyway, so that's what she concluded. And she decided that the appropriate remedy for this breach of fiduciary duty was rescission to rescind the grant. So she basically took it all away. And well, after that.

[A]

Can I ask about that real quick? For, to rescind, it basically means put the parties back where they were.

[B]

Well, this becomes the day before. Exactly. Which, okay, well, that, yeah, but she, which, that. And this would ultimately become the focus of the, of the, of the Supreme Court ruling. But, but, but. Right, so. But what she said was, on rescinding the grant, just rescind the contract. Just make the contract go away. It's as though it was never there. And now he doesn't have his 56 now hundred billion dollars stuff right now, of course.

[A]

So that was the substance of Chancellor McCormick's decision that was then appealed to the Delaware Supreme Court.

[B]

But of course, while the appeal was pending, we had a bit of a political.

[A]

All sorts of shenanigans, all sorts of bullshit went on.

[B]

Yeah. Elon Musk went on this revenge tour against Delaware. He persuaded shareholders to reincorporate Tesla out of Texas. And then, of course, as we've said several times. Yeah, yeah, sorry. Into Texas. Sorry, yeah. And then, as we said several times, the whole controversy kicked off a sort of wholesale rebellion against Delaware from a lot of boards. I don't think that it wasn't this decision alone that did it. It was more like this was the final straw because of sort of growing sense that the Delaware courts had become too critical of managers. And there were a lot of threats that other companies were going to leave the state. Some actually did leave the state, which ultimately led to the legislature passing this new statute which we have discussed to dramatically loosen.

[A]

And that was SB21.

[B]

I think SP new statute makes it much, much less court review of conflict transactions like Elon Musk pay package. But the new statute, though, going forward, it means the courts will just not be as involved in reviewing this Kind of thing. It didn't apply to the pending case.

[A]

Right. Because that case preceded the law.

[B]

Exactly.

[A]

The statute amendment.

[B]

So the case was going to be decided under the old standards. And McCormick's decision was appealed to the Delaware Supreme Court. So when the Delaware Supreme Court got hold of it, they had this political hot potato. Because I feel like on the one hand, first of all, they were working with this old law, which is no longer going to be the law going forward anyway. And on the one hand, if they got into the facts and they suddenly. And they overruled her and they said, oh, no, McCormick was wrong. This board was totally independent of Elon Musk. They negotiated.

[A]

Yeah, that would be that. Interpret. I mean, the facts, just don't.

[B]

Nobody would have bought that. I mean, it would just would have been ludicrous. It would have made them a laughingstock. I mean, you didn't even have to read the facts of her decision to like, under, like there is to understand that this is a board that's captured by Musk. So there was no way they could hold that. But on the other hand, if they affirmed her and withheld Musk's pay and agreed that his pay would be withheld, that just would have added more fuel to this fire, maybe reignited more companies threatening to leave. So they're in this incredibly difficult position and we get this decision.

[A]

So were they. And I'm guessing that the position was truly, objectively difficult for the Supreme Court.

[B]

I think it really was. It really was. And so they came up with their solution was to say absolutely nothing, but still give Musk his payback.

[A]

So what do you mean when you say absolutely nothing? You mean they didn't have anything to say about much else about McCormick's ruling? Okay.

[B]

The most incredibly technical grounds to reverse it. I mean, it's very hard to read this opinion in any way, but other than they were looking for a way to reverse her by saying absolutely nothing in order to get rid of this political legal equivalent of a hostage video, you blink twice if marks are.

[A]

Oh, I see. So you can just. So let's explore for a moment those technical grounds. I think it's worth worth mentioning. So. And it had to do with precision, right?

[B]

Yes.

[A]

So what did that look like?

[B]

Well, no, I mean. Well, to understand, Remember most of this appeal, most of what the plaintiffs and the defendants were arguing about was whether Musk did in fact violate his fiduciary duties to Tesla, whether the shareholders appropriately ratified his conduct. That was like, yeah, there are all

[A]

sorts of really delicious legal and Factual issues.

[B]

Whether this was in fact a violation of fiduciary duties. Yeah, the Delaware Supreme Court didn't rule on that question. They didn't even acknowledge that the question was before.

[A]

Oh, really?

[B]

There was a breach of. They didn't acknowledge like if you act like if they look like question presented the question. They don't even acknowledge that it is before the court whether Musk violated or

[A]

whether he was independent, whether he controlled, whether there was fully informed. Okay, they were concerned.

[B]

That wasn't even before them. But it was. It was before them. There were briefs and everything. Instead, the court held that assuming there was a fiduciary breach here. And they're not saying there was, assuming there was this remedy of rescission where you take back the entire pay package that was not appropriate. Why? Because recision, as you said, the legal remedy of rescission, as a technical matter, is supposed to mean that you restore the parties to their original positions, you take the contract away and you put them back where they were before the contract was entered into. And that wasn't possible here because there was no way to restore Tesla and Musk to the positions they were in in 2018. You can take the money away, but you can't turn the clock back to 2018. So recession, which is a particular remedy with a particular legal meaning, wasn't appropriate. Now, here's the thing. The court acknowledges there are other remedies that could have been awarded. Disgorgement, which means you make must give

[A]

back ill. Oh, interesting. So stop right there. So disgorgement and rescission to different things. Well, wait a sec. Legally they're different things, but financially, to an economist and a Tesla shareholder like me, they would be fundamentally the same.

[B]

Well, it depends. I mean, if you thought the entire amount was illegally gotten or whether you only portion. There's also a concept called rescission rate damages. And it's for exactly this situation where rescission isn't feasible because you can't put the parties back to where they were. But the plaintiff. But so, so instead you award damages to try to make up for the fact that you can't put the parties

[A]

back where they were.

[B]

But they. The court said the plaintiff didn't ask for these things. The plaintiff didn't ask for disgorgement, the plaintiff didn't ask for residuary damages. They're the only thing they asked for. Rescission. Recision is technically not the right word you should use. So therefore the plaintiffs kept bupkis.

[A]

So, I mean, and that's a technical term too, isn't it? Isn't that. That's in Blacks. Blacks Legal Dictionary. Bupkus.

[B]

So this is all very silly. The Delaware Supreme Court had plenty of discretion to award some alternative amount or to remand to McCormick to determine an alternative amount, and they chose not to.

[A]

And they just. I think they wanted to be done with this.

[B]

They wanted to be done. And the part of the opinion that really stands out is the second half dealing with attorney's fees. So McCormick awarded like, $345 million in attorney's fees, but that was based on the idea that Musk's entire pay was rescinded. So if his pay was restored.

[A]

Oh. Cause that's like, as a percentage or whatever. We've talked about that with Grundfest and Joel. Right. About how attorney fees work in this kind of stuff. Okay, go ahead.

[B]

She awarded 345 million, but she took it as a percentage of the value of the grant when it was awarded in 2018, which was, as an option, was like $2 billion. So the idea was that she awarded pay 345 million, which is very, I think, the largest.

[A]

It's a lot. Been a lot of money for those lawyers.

[B]

Yeah. But on the theory that they had won this extraordinary award for the plaintiff, the entire grant was rescinded. But. So if his pay is restored, then you have to ask, what should the fee be? Now, keep in mind, if there was no fiduciary breach, if the plaintiffs are just wrong, Tesla was fine, the board was fine, the shareholders ratified it. If the plaintiffs are wrong, the plaintiffs don' Get a fee. You don't get attorneys fees.

[A]

Right. Yeah, they lose.

[B]

They lose. But instead of even deciding whether there was a breach, the Delaware Supreme Court said there should be a fee. But it's a fee that compensates the plaintiffs at about four times.

[A]

Oh, they're Their hourly rates or whatever.

[B]

So like $60 million now. Something like that. So 60 million, that's a lot of money. Tesla shouldn't have to pay $60 million if there was no breach of fiduciary duties. And Tesla's board absolutely argued that there was no breach of fiduciary duties, but they didn't weigh in on this question. The court said Tesla has to pay $60 million in attorney's fees. So that's why this opinion comes up.

[A]

Oh, because. Because I didn't they say there was like a dollar of nominal damages or something?

[B]

Yeah, it was. Yeah, exactly. They said that without. With precision, there's a dollar of nominal damages, but again, without acknowledging that actually the question of whether there was any damage, whether there was any breach was before them.

[A]

They didn't do any analysis, didn't look at that at all.

[B]

So the Dallasman court was caught in this catch 22 and they came up with this holding that doesn't set any precedent because future plaintiffs aren't going to just use the word recession, probably has zero implications for future cases, but still manages to placate all those companies that were threatening to leave by giving Musk his payment.

[A]

So they kind of threaded this needle here. Yes, in a fairly I would based on what you've said and basically what I've read about in a fairly deft way, assuming, I mean, legally this is highly questionable. But in terms of the overall environment,

[B]

well, it solves their political problem, whether you call it debt or not. I mean, like it's not like we can't see what was driving this decision. And so what it really in some ways says is Delaware can be threatened and the court can be threatened.

[A]

So I mean for and that's disappointing. That's sad.

[B]

And one of the things about it that I've pointed out is that it's per curiam.

[A]

So what's per curum curium is it

[B]

means it's an opinion that's not signed by anyone.

[A]

Justice so normally so and this is like a five panel, five judge. So I've justice panel or something. Right. And so so what happened?

[B]

And normally a normal court opinion is actually authored by a particular judge and there and the others join it. And so you recognize this is a strine opinion, this is a laster opinion.

[A]

Oh. So they they all kind of sit around and say, okay, you're in, you write it and we'll sort of endorse it. Exactly.

[B]

If you sign to one justice and that justice writes it and the others, maybe they nitpick in the process. Maybe they'll say, well, I'm unhappy with that sentence. Can you change it? And when they're all on board, then they sign it. And if there's a dissent that's separate. But per curiam means it's not signed by any one justice. It's issued by just the court. And usually when an appellate court like the Delaware Supreme Court issues an opinion, when it does per curium, that's usually for hypertechnical rulings, insignificant rulings, rulings that aren't precedential. But this is a case that had global attention and they still issued their ruling per curium. No, justice put their name on it. It's like they're not even trying to hide how much politics is playing a role. Shouldn't know.

[A]

This is really. Let's make this go away.

[B]

Yeah. And I mean, can I just. I want to just identify the elephant in the room for me on this, so.

[A]

Please.

[B]

Handing Musk $100 billion, right. It's much more significant than simply making a CEO very rich. Money on this scale, this is wealth that gives him public power. It gives him political power. It gives him global political power.

[A]

Right.

[B]

That shouldn't be the case. It shouldn't be the case that just because we run a car company, well, suddenly you can influence.

[A]

And he doesn't even do that lately.

[B]

But okay, well, yeah, that is a separate. But just because you run a car company, you shouldn't suddenly be able to influence global political affairs. But that's what it means. That's the world we live in. And that's not Delaware's fault. It's not really Delaware's responsibility, but it's the background reality that the court was operating against. And look, I don't know the justices personally, but if I'd been strong armed into giving Musk that kind of political power, I wouldn't put my name on that decision either.

[A]

Oh, I see.

[B]

When history looks.

[A]

So the pure Curium wasn't because they wanted to evade responsibility for this questionable legal.

[B]

Yeah, I wouldn't want my name. I mean, I don't know. It's not like they're confiding their thinking in me. I'm just saying if it were me, if I didn't stand behind the ruling legally, if I weren't like this is just the correct legal ruling. So let justice be done. Though the sky may fall. If I felt like I'd been strong armed into it, I wouldn't want to put my name on that either. Especially given what Elon Musk might do with the political power.

[A]

Right. Yeah, well, exactly. He's, he's, he's. I mean, he's been fairly quiet about this. Well, I mean he was. He cheered it, but it's not like he was. Oh, the case, yes, but no, about the case. Absolutely. Oh, no, no, no. He's. He's all over on. But in terms of the outcome here, I think he kind of took the

[B]

W. Yeah, he tweeted and said.

[A]

And said thanks and let's move on.

[B]

Start bites, but I finish them and then.

[A]

Right. So, so, so, so he now has his. It's roughly 300 million shares and it's, it's in the form of options that he hasn't exercised yet. So those are sitting there on the books. I think he actually filed a form for updating his holding or to.

[B]

Yeah, and they should. And they forfeits. Now, that interim award that the board gave.

[A]

Right.

[B]

That's the other pay package and all that.

[A]

And, you know, I suppose the lesser, the lesser problem for Tesla shareholders was that that alternate pay package was going to cost us a ton of money. It was going to cost him a ton of money in taxes and it cost us a ton of money in accounting charges. And that's all been avoided because the original accounting charge was like two and a half billion dollars to award him what's now worth.

[B]

Tesla, definitely. I mean, they had promised, they had planned to give him back the money either way. But this is definitely better for Tesla if they give it back to him this way.

[A]

Right. But this is, this is clearly a, a loss in some sort of broader sense. First in getting some clarity legally about what it means to control and what it means to get approval. There was all sorts of really interesting stuff that I suppose, I suppose her changed. Well, the law changed it. But I suppose they let stand a lot of chance to McCormick's reasoning.

[B]

Yeah, but as reverse. But I'm just not sure that it matters anymore because SB21 sort of gets rid of a lot of the law.

[A]

But then there's the broader themes about what it means kind of for Delaware's role in kind of distributing power between investors and executives. And that's. And that's unfortunate.

[B]

It.

[A]

Yeah. Yeah. All right. Wow. Per curium. Per curium. Per curium. That's like the curia, like at the Vatican. Right. Probably the similar road.

[B]

Don't know the line anyway.

[A]

All right, that was insightful. Why don't we take a quick break, shall we, and talk about how guys like me recruit activist candidates? Shall we do that? Okay, we'll do that in a minute here at Shareholder Primacy.

[B]

Shareholder Primacy is brought to you by

[A]

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[B]

Welcome back to Shareholder Primacy. I'm Ann Lipton here with Mike Levin and we are looking at how activists recruit director candidates for an activist project. So actually. Yes. How do activists find People to run for a board election.

[A]

Well, it's worth saying that how the process and the thinking there has evolved now. You know, this, this kind of came up after you and I talked some weeks ago about kind of what activists are kind of up to right now, which is, you know, doing filings. There's a whole bunch of proxy contest cooking. There's like, I just counted, there's seven that are pending right now as of January 1st or roughly, and then there's a whole number that'll be announced. And part of those, of course, is finding director candidates to, to be on your, as we say, a slate. And you'd think it's pretty easy, right, that this is, you know, serving on a board of directors supposed to be kind of cushy. Right. You want to do it? You want to make. Go ahead.

[B]

I'll mention I have a friend of mine who, a professor who studies boards and he's done a lot of research on boards and he said that people used to come up to him and like, ask him how they could get a board position. He's like, I don't know. I just studied this.

[A]

I just, I just research. I don't actually go through the process. I mean, you want to do it, right? You, the, the average board.

[B]

Like, I, it's not, it's not for the money. Actually, I would love it from a, from an educational standpoint for me to put me on a board.

[A]

Don't downplay the money. Well, the money at an S&P 500 board, I, I am very aware somewhere in the range of actually like I just two to $400,000 a year to attend, you know, four or five board meetings in person. Yeah. Mostly a few committee meetings, which you can usually do virtually. It's, it's, it's a, it's a lot more work than it used to be because of the litigation of fiduciary risk than it was 20, 30 years ago.

[B]

A lot more. There's been more like regulatory matters that have been put.

[A]

Yeah, but still, you know, you got to sit through.

[B]

Yeah. It's not a full time job either way.

[A]

No, it's, it's, it's, it's, it's, it should be really kind of good. Except, except activists are a little different, as you, I'm sure you've learned in your interactions with me over these past years. Because, you know, let me, let me point to a couple dimensions of an activist project. First, of course, we're dealing with turnarounds. We're dealing with, you know, companies that aren't just smooth sailing where you can go to four or five board meetings a year and a few committee meetings. There's a lot of work. You sometimes are recruiting a new CEO, sometimes you're getting into, you know, weekly or meetings about how the business is going. You're retaining investment bankers for and supervising them for strategic reviews. There's, there's a lot, a lot more work and a lot harder work than it might otherwise be.

[B]

Right, right.

[A]

And then furthermore, working for an activist is, or on an activist slate used to be kind of career ending that. I mean, at least if your career involved getting on boards.

[B]

Right. Because you position yourself as being opposed to boards. So now boards.

[A]

Right. You're not a go along kind of guy person. Sorry, you're willing to ask a lot of nosy questions and not accept baloney answers. I mean, that's kind of the nature of that kind of thing. And I think all boards obviously should behave that way, but in particular activists.

[B]

Yeah, yeah, they're challenging the board. They're, they're not going to, I mean, I think we've said previously, like I was surprised to learn that Exxon is still really upset that investors challenge them with Director Kennedy.

[A]

That's right. So anyway, so, so that used to be a big problem. And so activists for a long time would be, you know, kind of

[B]

the fact that you wanted to do it meant that, you know, you could do it in a, in a way, if you want to be on a board, then you can't. Yeah, I see.

[A]

Right. Or if you wanted to be like recruited by a nominating a corp. Gov committee, once they saw that you'd even, you know, been at some point in the past on an activist slate, they'd move on to the next person. Well, that's not, that's not quite true anymore. We'll talk about that in a minute.

[B]

Okay.

[A]

Because activist projects have become more acceptable obviously, you know, relative to past years working on. Especially if, if you kind of do a really, you know, workman like job of trying to help with the turnaround, help recruited executive help, you know, deal with the sale of a business or something, something like that. Those kind of, those kind of skill sets are still, you know, kind of valuable. And to be able to show that if you show it in an activist project, well, that's, that's okay. So just as activist investing has become a much more acceptable way of allocating capital in the past, you know, call it 10 years, serving as a board candidate for an activist investor is also become a little More acceptable. Again, not completely. Okay. And it's, and it depends how you comport yourself in some ways, but it's not quite the career ender that it used to be. But then we, then we get to the question of exactly how do you do this? If you're, if you're like me, what do you find?

[B]

People.

[A]

Right.

[B]

Well, and presumably we're talking now about, I think we're talking about members that you're talking about as being independent. Like, you're, like your, your pitch to the shareholders is they are independent of me. They're just well qualified. Well, and they will.

[A]

Or with a, with a, with a caveat on there, because the first, again, the first level of independence is independent of the company. Right, okay. But then there's also kind of independent of the activist.

[B]

Right.

[A]

Which sometimes has its appeal.

[B]

Right. Yeah.

[A]

There are shareholders that value that, that want to vote for directors that really aren't trying to express the interests of just one single shareholder, but will kind of represent all shareholders.

[B]

And it might be like a difference of, like what your theory is of the problem with the company, presumably.

[A]

Absolutely. Right.

[B]

So there are some hedge funds. They'll put the hedge fund guy on the board and sometimes they'll recruit independent, saying, look, I just think they need an outside person to look, they need

[A]

someone who's completely, completely. But the first place I usually go, if I'm advising somebody or whatever is to say to the shareholder, the investor, the portfolio manager. Would you consider being the director? Would you be considered being the one, you know, either one. If they're looking just from one seat or the whole, you know, or the first of many, of several. And there's this reason for that. First, of course, you know, one of the downsides is, you know, you're not necessarily independent in the way that we were just talking about, but when a portfolio manager does this, it sends a couple of very important signals. Okay. First, you know, the most valuable resource that one of these folks have, if you're, you know, Nelson Peltz or Jeff Smith, is your time. And if you're willing to spend the few hundred hours a year that's required to deal with a turnaround situation, that sends a really important message to your limited partners, to other shareholders, to the company, that this is enough of a priority that I'm going to spend a lot of that valuable time on this one company in what presumably is a least modestly diversified portfolio.

[B]

Right.

[A]

Okay. So, so, and, and that, that I think, has a lot of credibility. It also helps, you know, that we we always talk about having this kind of ownership mindset on the, On a board. Well, you know, having someone who's got, you know, if you're a defiler, you know, at least 5%, at least if you. It's either your own money or you have fiduciary duty to that money, you know, that really is. There's. There's no better way to demonstrate that kind of investor mindset by. Than putting that person on the board. But nonetheless, sometimes portfolio managers, you know, they'll decline. There's, you know, blackouts and there's trading restrictions, and sometimes they like to be able to trade around the position. You can't do that real easily if you're on a board. Or we get to the independence issue that you identified, which, again, you know, and I've had these conversations with people where they say, you know, it's. It may not look kind of good to other shareholders holders whose view, whose votes we're trying to attract because they're

[B]

afraid that, you know, I'll run the company to benefit my particular fund strategy rather than.

[A]

Right, exactly.

[B]

So a different strategy.

[A]

Right. And again, as hard as that kind of becomes, if you're just one or two people on a board of, you know, six, eight, 10. But still, the optics around that sometimes are challenging. So you get to other things first. The first. The next thing I do is tell is go ask other shareholders. Are there candidates that you would love to see on this board? Okay, so if you go to, you know, if I own, I don't make them a number 4%, and I go to someone who's got 9% who's otherwise just passive, you know, g filer and say, is there someone that, you know? You know, maybe you don't have a person within your shop that would like, but is there somebody who you'd like to see? And they say, oh, yeah, it's kind of funny, you know, I knew a former executive who would be perfect. If you do that for two or three shareholders, you really start to, you know, pardon the expression, lock in their support for whatever you're doing.

[B]

Right, right.

[A]

It's. It's a great tactic for trying to find people in a way that builds some trust and the spirit of collaboration between yourself and these other shareholders. Now, again, you got to kind of word this carefully to make sure you're not, you know, forming a group with that other shareholder. But that's, that's technically feasible. You could sort of say, is there someone that you'd like to see if

[B]

you haven't made an agreement then if they haven't.

[A]

Right, exactly. Just if you're looking for suggestions that, you know, having another large shareholder suggest someone doesn't mean you have to do it. Right. It just means that you're.

[B]

They haven't even promised that they've lived for them.

[A]

It's Right, exactly. And so, so that's another step. Then there's a couple other places to go. There are activists that have increasingly started retaining search firms to do this. Now there are.

[B]

I mean, is that good? Well, are there concerns about confidentiality with that kind of thing?

[A]

Not really. I mean, no more or less than any other kind of search. You know, the couple that I know, there's, there's at least two search firms I won't, I don't need to mention them here that have a bit of a specialty in advising activists. And you know, they kind of understand some of the issues we've been talking about and, you know, are really good at collaborating with an activist, kind of understand the mindset. Of course that costs some money. And you know, again, you do risk a little bit of, you know, losing some of the edge you might have if word gets out that there's a search firm looking for candidates for a certain kind of board. But that's, that's what's nice about that. That's a very professional way of doing it. You'll get to some, possibly some candidates you might not otherwise find and you can kind of do it systematically in, in a way that, you know, you might not be able to do if you're just a portfolio manager. That's, you know, doing what, what I would label next is like calling your friends. Right. So, so that, and that was kind of the time honored way of doing this. And, and activists used to do this. You know, the night before a letter was due, they'd be calling on saying you want to be on a board. Those are in the bad old days.

[B]

We all know the problem with the cult. Yeah. Ask your friends. I mean, leaving aside everything else means

[A]

that, yeah, just, just find some. And that was kind of the warm body. Yeah. Theory of trying to do this. And again, that's, that still happens some. And what's nice about that is if you're, you know, talking to people that, that you've worked with before in various things, there's a high degree of trust. You know, one of the big problems that happens all the time with this kind of stuff is, is some activists happened at a couple companies I worked on years ago, excuse me, some, you know, activists Will, you know, recruit a director will get to. In this one case I'm thinking about, we settled with the company, we put the director on the board and they immediately got co opted. They immediately got captured by the board and no longer were the independent voice. You know, question.

[B]

Well, that happened to Air Products, Air Gas thing, which is. I love to.

[A]

Exactly. So, so, so that's. So you, that's much less of a risk if you're just working your own network and calling your friends. And you know, part of the problem with, you know, asking your friends is, is, you know, there's other shareholders that may be looking for certain, you know, expertise. So if maybe you have a certain kind of media company you're working on and you don't have many friends in that business, but you find somebody and then who you can trust but nonetheless other shareholders, oh, that guy doesn't have any experience in streaming or whatever where the business is. So finally there's this whole, you know, long list now of, of executive networks. There's women director networks and minority and all sorts of director networks that you can kind of go to that would be, I mean there's so many more people now than there used to be and it's so much better organized in time in terms of trying to find candidates and followers here. Want to know some of them? I've worked with a couple and they're really good. There's a lot of really good candidates, people that you know, present really well. You can, you know, get five or 10 people and winnow it down quickly to who you need and that, that also works, works pretty well to get to these director networks. So there's a series of steps you can basically go through that I've gone through to try to find people to, to do this kind of thing. You know, just to recap, starting with yourself again, that's, you know, if you can get over the independence issues, that usually sends the right kind of message to a lot of people. If you're willing to do this. The only other comment I'll make is this has become a lot more important under universal proxy kind of how you recruit candidates and what they look like and what their credentials are and their background and their experience and so forth. Because as we've said before, under universal proxy director elections are much more individual

[B]

incumbent versus challenger and you're targeting a particular person so you want to make sure that you have the exact matchup.

[A]

Right, Exactly. So, so if you're, if your thesis is we need to sell the company or we need to Sell this division or something like that. And there is absolutely no expertise on the board that has any kind of deal experience. They don't know how to retain a banker, they don't know how to price a deal. They know how to negotiate a deal or whatever. And we have two candidates here that are really good at that, you know, that really supports your thesis really well now, I mean, you know, then, then you gotta get the, in this stylized example, then you have to assume shareholders like the idea of selling whatever you're trying to sell there. But because the comparisons are somewhat more person to person and direct, this whole recruiting process has become a lot more critical than it ever was. And so, you know, the days of, I mean, still we do it a little bit, calling the night before notices, trying to see who's available. Still happens. But usually there's a lot more planning that's gone into this. As a matter of fact, right around now, you know, first week of January, a lot of this stuff's kind of baked in at this point.

[B]

Okay.

[A]

A lot of director candidates that are going to be put forth in the coming months have pretty much been identified roughly following the process that I've, I've outlined here. So that's, that's kind of how that works. Isn't that interesting?

[B]

That is interesting.

[A]

So, so now here, Anne, you want to be on a board, you want to get another 3,300k?

[B]

They would have me as best.

[A]

You'd be, you know, you, I mean, look, your knowledge of, of, of law and corporate governance and so forth is surprisingly scarce on boards. There are boards that have, you know, practicing lawyers, you know, that, you know, that are more like deal oriented kind of folks and they tend to be retired. Most, most boards would not have an active outside counselor or whatever, and you may have a general counselor from other companies on a board. That's unusual. But having an academic law professor on a board could be kind of good. So everybody who's following, if you're looking for directors, you know where to find her. How's that?

[B]

Yep, I'm right here.

[A]

All right, great. Why don't we, why don't we leave this be for now, shall we? Okay. And wrap up?

[B]

Absolutely.

[A]

All right. And we can come back next week and find more good stuff to talk about.

[B]

Sure. I'll be more active, right?

[A]

Exactly.

[B]

All right.

[A]

This is Shareholder Primacy hosted by an lift enemy, Mike Levin. I am an independent activist investor, an advisor to investors about their activist situation, and is professor of law and The Lawrence W. DeMuth Chair of Business Law. At the University of Colorado Law School and a prospective director for your activist projects. You can find me [e-mail] and Annaw, Colorado. Eduardo D U. Our podcast is produced and distributed by Free Float media. Welcome to 2026. Thanks for listening and we'll talk again soon.