Elon Musk has incredible influence over the companies he leads. And while he already calls himself the “TechnoKing” at Tesla, he’s the true master of SpaceX, wielding an unprecedented level of control over one of the world’s most valuable companies.
Musk’s monarchical control of SpaceX was finally revealed in the company’s IPO filing made public on Wednesday.
After the IPO, Musk will serve as CEO, CTO and chairman of the board of SpaceX. Its current 85% voting power will be reduced after the IPO, but will still be above 50%, giving it the ability to appoint directors as it sees fit. Basically it can’t be fired.
The company has placed limits on how shareholders can file lawsuits and will benefit from a much more permissive regulatory regime in its home state of Texas — an environment Musk helped create when he forcefully moved Tesla’s incorporation there from Delaware.
As SpaceX clearly tells prospective investors in the filing: “This will limit or preclude your ability to influence corporate matters and the election of our directors.”
More checking from Mark
Tech founders have enjoyed increased control over public companies over the past two decades, especially as Google, Meta (then Facebook) and other tech companies went public with dual-class shares.
But Musk and SpaceX are going much further, according to Anne Lipton, a law professor at the University of Colorado.
Lipton argued, in a blog published last Friday, that Musk does away with the three most powerful levers shareholders can typically pull to pressure a public company’s top executive.
The first is voting. SpaceX uses a dual-class structure, with Musk owning 93.6% of the Class B supervoting shares that will not be available to the public in the offering.
Despite aiming to be the largest IPO in history, Musk will still hold more than 50% of the voting power once SpaceX comes up. This makes it a “controlled company” under stock exchange standards, and controlled companies are allowed to be exempt from rules requiring independent oversight.
SpaceX states in its IPO filing that common shareholders (who will own Class A shares) “will not have the same protections afforded to shareholders of companies subject to all Nasdaq corporate governance requirements.”
Crucially, Musk’s voting control means he will be able to decide anything that requires shareholder approval. This includes decisions such as mergers and acquisitions. If Musk eventually wants to merge with or acquire Tesla, as many people speculate, he won’t need to convince SpaceX shareholders.
Vote control is the biggest difference between Musk’s power at SpaceX versus Tesla. Musk has only 20% of the voting control of Tesla and has had to put enormous pressure on the company in recent years – including, at one point, threatening to exit entirely – to be granted more shares. (Tesla obliged last year by devising a $1 trillion compensation package approved by shareholders.)
Legal shield
The second lever that limits SpaceX is the possibility of a lawsuit.
By incorporating in Texas, SpaceX has ensured that shareholders cannot file what is known as a “derivative suit” unless they own at least 3% of the company’s stock. (At an expected valuation of $1.75 trillion, this would equate to a position worth about $52 billion.)
Derivative lawsuits occur when shareholders sue a company’s executives on behalf of the company itself — such as when a small shareholder sued Tesla’s board over the $56 billion pay package Musk was given in 2018.
In addition, SpaceX has included language in its bylaws, channeling most lawsuits either through the new Texas Business Court, which did not begin operating until 2024, or through mandatory arbitration.
In other words, Lipton told TechCrunch, “Forget it, that’s it. There’s not going to be a lawsuit” in most cases.
That wasn’t the case before Musk kicked Tesla out of Delaware and moved it to Texas, he said.
In fact, Lipton said that until a few years ago, Delaware was increasingly looking at the exact kind of regulated company that SpaceX has become.
“You could have the dual-class shares, and that would give you a lot of voting power, but it also meant you were subject to a greater degree of oversight by the Delaware court system,” he said.
Vote with your feet
The last lever of shareholder power that SpaceX has broken, Lipton argued, is the ability to sell shares and exit.
SpaceX successfully lobbied the Nasdaq stock exchange to loosen rules governing how and when it adds companies to the Nasdaq 100 index — a group of large-cap companies it describes as “fundamentally sound and innovative.”
This process took months, but it is now expected that SpaceX will be added to the list in a few weeks.
When companies are added to these indices such as the Nasdaq 100 or the S&P 500, they become automatic purchases for large financial institutions (such as 401k providers).
As such, Lipton argues that SpaceX’s share price will be boosted in the first days of public trading by this impending inclusion, as traders will want to buy before institutional investors come in and push the price even higher.
“Normally, if you can’t vote and you can’t sue, you can at least sell and lower the price, and that hurts,” Lipton said. “It hurts the controller [of the company]hurts stock-paid executives. But now even that is being manipulated.”
Chan Ahn, a former executive at Goldman Sachs and JPMorgan, and the current CEO of private equity firm Tessera, said he broadly agreed that rapid inclusion on the Nasdaq 100 could drive the price higher.
However, he told TechCrunch, shareholders will still be able to “vote with their feet” and sell their shares — it just might not have the same impact.
“You don’t have to buy, and if you have it, and if you don’t like it, you can sell,” he said.
All the money
Beyond that scrutiny, Musk stands to earn a historically abnormal amount of money from SpaceX going forward.
Not only will the IPO make him the world’s first trillionaire, but he was awarded a compensation package consisting of 1 billion Class B shares.
Those shares don’t vest until Musk makes the company worth $7.5 trillion and, most importantly, succeeds in “establishing a permanent human colony on Mars with at least one million inhabitants.”
However, while the “Mars colony” requirement may make the package seem out of reach for many, Musk can still extract a ton of value from these shares long before SpaceX reaches the red planet.
In the stock award agreement attached to the IPO filing, SpaceX discloses that Musk can vote those shares even before they vest. In addition, he can put them as collateral for loans. It’s a popular move for the ultra-rich to access lots of cash without being taxed on unrealized gains, and it’s something Musk has done often in the past with his shares in SpaceX and Tesla.
While borrowing against these Mars colony shares technically requires board approval, Musk controls the board. Ultimately, the decision will be his.
These incredibly valuable shares become regular common stock if and when Musk sells them.
But there is one notable exception. Musk can place them in trusts to maintain supervoting status, meaning it’s possible the SpaceX king – who has at least 14 children that we know of – could be positioned to create dynastic control.
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