Judge who slashed Elon Musk’s pay package known for being tough on Wall Street

31 January 2024 - 11:00 By Tom Hals
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Tesla CEO Elon Musk was set to earn $56bn until a US judge decided against the very hefty pay package. File photo.
Tesla CEO Elon Musk was set to earn $56bn until a US judge decided against the very hefty pay package. File photo.
Image: Spencer Platt/Getty Images

The Delaware judge who rescinded Elon Musk's record $56bn (R1.05-trillion) compensation from Tesla on Tuesday has a reputation for her calm demeanour and demanding standards for corporate behaviour.

Chancellor Kathaleen McCormick's ruling on Musk's pay follows decisions against a private equity firm that tried to wriggle out of a takeover deal and a CEO who shortchanged his own shareholders when he sold his company.

The first woman to lead Delaware's Court of Chancery, the go-to venue for US corporate litigation, has tangled with Musk before.

McCormick oversaw Twitter's July 2022 lawsuit against the entrepreneur when he tried to break his $44bn (R825.6bn) contract to buy the social media platform. The judge rejected Musk's foot-dragging tactics and on the eve of an expedited October trial, he agreed to stick to his deal to buy the company now known as X.

The judge said she rushed the Twitter case to protect the company and shareholders from damaging uncertainty. By contrast, the Musk ruling took an unusually long time for a court that prides itself on delivering complex rulings in a matter of months. The weeklong pay trial for Musk, which was held without a jury, ended in November 2022.

McCormick is known as soft-spoken, smart and amiable, a contrast to Musk's sometimes brash and volatile behaviour.

“She's met a lot of people like him in private practice,” said Charles Elson, a retired University of Delaware professor who filed a brief in the case arguing Musk's pay was unfair.

“He's not going to intimidate her.”

McCormick has defended her court from conservative critics from former US president Donald Trump's administration and guarded the interests of smaller investors.

Last year, in the first ruling of its kind, she found Rick Stollmeyer shortchanged shareholders of Mindbody, the company he cofounded, when the CEO rigged a cut-price sale to his favoured buyer.

In 2021 she became one of the few judges to order a reluctant buyer to close a corporate takeover when she rejected Kohlberg & Co's claims it lacked financing for its $550m deal for DecoPac Holding.

She has also protected investors from their own attorneys.

In July last year she slashed a requested legal fee more than 90% for attorneys who brought a dubious lawsuit on behalf of shareholders of Magellan Health.

“Where lawsuits are not worth much, plaintiffs’ counsel should not be paid much,” she wrote.

Her opinions have topped 100 pages in length, which she has enlivened with quotes from US chef and author Julia Childs and insights from college football legend Knute Rockne, who coached at Notre Dame, where she earned her law degree.

McCormick started her career with the Delaware branch of the Legal Aid Society which helps low-income people navigate the court system.

She went into private practice for financial reasons, joining one of the state's top corporate law firms, Young Conaway Stargatt & Taylor, according to her confirmation testimony to the Delaware Senate.

“They taught me a form of advocacy that appealed to my natural inclination,” she told the senate. She learned the best way to deal with difficulties, in business and in life, was “not with ego, but with logic, and reason, and open minds”.

Reuters


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