that the liquidation would be harmful to the company and his actions to stop the liquidation were reasonable. MFW Applied to Comp Package for Controlling Stockholder/CEO In Tornetta v. Musk,34 the court rescinded a 2018 compensatory equity grant by Tesla to Elon Musk that was the “largest potential compensation opportunity ever observed in public markets.” The court applied the entire fairness standard of review after finding that Musk, though holding only about 22% of Tesla’s voting power, was the “paradigmatic ‘superstar CEO,’” with “thick” ties with relevant other directors, and “dominated” the grant process, and thus controlled Tesla “[a]t least as to” that process. The court noted that a stockholder may have transactional control where the totality of the circumstances shows that the stockholder “exercised actual control over the board of directors during the course of a particular transaction.” The grant was conditioned on approval by a majority of the minority stockholders, but the court found that the disclosure relating to the grant process was flawed, including because it failed to disclose Musk’s relationships with the relevant directors. The company subsequently expanded its disclosure and asked stockholders to ratify 34 Tornetta v Musk, Del. Ch. Jan. 30, 2024. 35 Tornetta v. Musk, Del. Ch. Dec. 2, 2024. the prior action, but the court found additional disclosure defects and rejected the potential for ratification.35 The decisions have drawn considerable publicity and are being appealed. Controlling stockholders and companies must recognize, consider and manage conflicts in transactions and other operations. 2024 M&A Annual Review 17
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