Elon Musk wields immense influence over his companies. Though he’s dubbed himself “TechnoKing” at Tesla, his true reign is over SpaceX, where he exercises unmatched control over one of the world’s most valuable firms.
Musk’s commanding position at SpaceX was revealed in its IPO filing publicized on Wednesday.
Following the IPO, Musk will operate as CEO, CTO, and board chairman at SpaceX, retaining over 50% voting power, allowing him to choose directors at will. Essentially, he cannot be ousted.
The firm restricts shareholders’ ability to legally challenge it and benefits from Texas’s lenient regulations, an environment Musk fostered by moving Tesla’s incorporation there from Delaware.
SpaceX cautions potential investors: “This will limit or preclude your ability to influence corporate matters and the election of our directors.”
More control than Mark
Tech founders have gained increased control over public companies recently, with firms like Google and Meta going public with dual-class shares.
However, Musk and SpaceX are pushing the boundary further, according to Ann Lipton, a law professor at the University of Colorado.
In a blog post last Friday, Lipton argued that Musk is dismantling the three key levers typically used by shareholders to influence a public company’s executive.
First is voting. SpaceX employs a dual-class structure, with Musk owning 93.6% of Class B super-voting shares, unavailable to the public.
Even as it aims to break IPO records, Musk’s share will exceed 50% voting power after SpaceX’s public entry, marking it as a “controlled company” per stock exchange norms, exempting it from certain independent oversight rules.
SpaceX notes in its IPO filing that regular shareholders, holding Class A shares, “won’t have the same protections as shareholders in companies meeting all Nasdaq governance requirements.”
Significantly, Musk’s voting control allows unilateral decision-making on shareholder matters, such as mergers. Even if Musk decides to merge with Tesla, he doesn’t need SpaceX shareholder approval.
Musk’s voting influence at SpaceX starkly contrasts with Tesla, where he holds only about 20% and had to exert pressure – even threatening to leave – to gain more stock. Tesla responded by crafting a $1 trillion compensation plan approved by shareholders last year.
A legal shield
The second curtailed lever is suing ability.
By incorporating in Texas, SpaceX ensures shareholders can only file “derivative suits” if they own at least 3% shares. For a projected $1.75 trillion value, that’s about $52 billion worth.
Derivative suits allow shareholders to sue directors on the company’s behalf – similar to a small Tesla shareholder’s suit over Musk’s $56 billion package in 2018.
Additionally, SpaceX’s bylaws steer most lawsuits to the Texas Business Court or mandatory arbitration. </