Fastexy:Elon Musk is synonymous with Tesla. Is that good or bad for shareholders?

Does Elon Musk control Tesla?Fastexy

It seems like a silly question. The answer is obviously yes: Musk isn't just the CEO of Tesla — he's its self-declared Technoking.

Love him, hate him or be baffled by him, Musk is both the face of Tesla and the driving force behind its success.

But Tesla is publicly traded. And no single person is supposed to have unchecked control in a public company — which is how that silly question became a crucial one in a momentous Delaware court decision.

The judge concluded, yes, Musk does control Tesla. She threw out $55 billion in Musk's compensation — and raised concerns about his dominance over the company he has made legendary.

Judge rules Musk too cozy with his board

The Delaware judge, Chancellor Kathaleen McCormick, was actually trying to answer a different question. As she put it in the opening words of her opinion: "Was the richest person in the world overpaid?"

Spoiler alert: Her answer was yes.

The ruling was unusual. For a public company, one that trades on the stock exchanges, a board of directors sets the pay for a CEO and monitors the CEO's performance. That board is supposed to include some independent directors who aren't tied to the company or its CEO. And judges typically defer to a board's "business judgment," including on CEO pay, no matter how exorbitant.

But McCormick found that Musk essentially set his own pay. As for the board that should have been checking his power?

"These people really weren't independent of Musk," says Deb Lifshey, of Pearl Meyer & Partners, a company that advises boards on executive compensation.

Musk himself sits on the board, as does his brother, Kimbal; they obviously are not independent, and both recused themselves from the vote on the pay package. But the key decision-makers were entangled, personally and financially, with Musk and Tesla.

"They were friends. They went to each other's weddings. They vacationed together," Lifshey said, summarizing the court's findings.

Lots of companies have CEOs and board members who are cozier than they perhaps should be. But no company has paid their chief executive $55.8 billion — except for Tesla. The compensation package was 33 times bigger than the next-largest package in history, which happened to be Musk's previous compensation package.

The combination of Musk's extraordinary influence over his company and the "unfathomable sum," as McCormick put it, that he received led the judge to declare his pay excessive. She has ordered Tesla to set a new compensation plan.

Extraordinary performance, extraordinary pay

Tesla and its board did not respond to NPR's requests for comment. But in court, they emphasized that Musk's pay was approved by shareholders and that his extraordinary compensation was tied to "extraordinarily ambitious" performance targets.

That's certainly true. Musk's pay package was set up as a series of 12 tranches, each unlocking more compensation. He wouldn't earn a salary but instead would receive more and more Tesla shares the more Tesla grew. He would receive the top tranche only if he hit targets for Tesla's value, revenue and profits that were regarded as impossible by pretty much everyone.

Cathie Wood, an influential investor who placed a big early bet on Tesla, always believed Musk could pull it off. And now that he has, she says, he deserves that $55.8 billion.

"He lived, ate and slept under his desk at Tesla in order to make this happen," she says. Basically, she says, shareholders got their money's worth.

And she doesn't share McCormick's concern that Musk has too much control over the company. She attributes Tesla's success in large part to Musk's being a "Renaissance man" and a strong leader.

Musk has recently said he wants even more influence over Tesla, in the form of more voting control, before Tesla moves forward with artificial intelligence and the humanoid robot named Optimus.

"He wants to be able to continue to shape the company," Wood says approvingly. And while many critics argue it's bad corporate governance for a single person to have significant control over a public company, Wood says her fund takes a different position.

"We want the visionary leaders of our companies to have disproportionate voting power in order to be able to execute on strategies without distraction," she says.

The perils of the "superstar" CEO

McCormick, the Delaware judge, worried about how much influence Musk has now over Tesla's boardroom. A CEO's superstar status can make even a truly independent director "likely to be unduly deferential," she argued.

"In essence," she wrote, "Superstar CEO status creates a 'distortion field' that interferes with board oversight." That is, it messes with the checks and balances that are supposed to keep a CEO in line.

Greg Varallo, the lead attorney for the shareholder who sued Tesla over Musk's pay, says this case was, obviously, about executive compensation. But more broadly, he says, "I think it's a little bit of a story about the power of the rock star CEO and whether a board should exercise some attempt to keep that person or persons within the boundaries of ordinary civilized governance."

"Attempt" may be a key word. Musk is an infamously erratic individual. Tesla's board either won't or can't stop him from doing things like picking fights with the Securities and Exchange Commission and tweeting inflammatory comments and conspiracy theories.

Yet, as Wood has argued, Musk's free hand has often paid off financially for Tesla.

Varallo stops short of saying that CEO superstardom is inherently bad.

"My own view is you have to look at the activities of that [influential CEO] to determine whether it's a good thing or a bad thing," he says. "When they effectively pay themselves $55 billion, perhaps it's not such a good thing."

Varallo expects Tesla to appeal the court's decision. That means there will be more back and forth over Musk's compensation and the pros and cons of his influence.

After the court's decision, Musk polled his X followers, asking whether Tesla should move from Delaware to Texas. Yes, they told him. And he announced the company would immediately put that to a shareholder vote.

"For Mr. Musk's benefit," Varallo says dryly, "the way that Delaware corporate law works is you are allowed to move, under the law, if you start by having the board of directors determine that might be a good idea."

A decision by the board of directors — a step, Varallo says, that Tesla's Technoking seems to have skipped.