Elon Musk’s control over SpaceX expands with super voting shares, unusual governance rules: Report
Ahead of what could become one of the largest IPOs in history, SpaceX has reportedly implemented a series of unconventional corporate governance regulations that appear to further strengthen the power of founder and CEO Elon Musk.
According to a report by The New York Times, the company gave Musk a massive restricted stock package earlier this year while also structuring voting rights, board oversight and shareholder protections in ways that management experts argue overwhelmingly favor Musk over outside investors.
SpaceX, valued at more than $1.25 trillion, is reportedly preparing for an IPO that could begin next month.
Musk gave voting rights on shares he did not earn
According to the NYT report, SpaceX gave Musk 1.3 billion restricted shares in January as part of a compensation package tied to ambitious milestones, including establishing a Mars colony with a population of one million and installing powerful data centers in space.
Although Musk failed to achieve these goals, the report notes that he is still allowed to vote those shares on shareholder matters.
Corporate governance experts told the NYT the regulation was highly unusual.
“I had never heard of this,” Ann Lipton, a law professor at the University of Colorado Boulder, told the news outlet.
“He basically found a way to hack the normal rules of corporate organization,” he added.
The report states that most companies grant voting rights only after performance targets are met.
Governance rules heavily favor Musk
The NYT reported that SpaceX also announced other governance arrangements that differ sharply from traditional public companies.
According to the report, SpaceX:
-Does not plan to maintain a board independent of the majority
– Will not rely on an independent compensation committee to determine executive pay
– Requires shareholder disputes under federal securities laws to be arbitrated rather than through court proceedings
Management experts told the news outlet that the measures effectively shield Musk from external challenges while tightening his grip on the company.
“These measures are a defensive moat,” Brian Quinn, a law professor at Boston College, told the NYT.
He added that they would “permanently cement” him as CEO.
Quinn also called Musk’s January compensation package “crazy,” according to the report.
Musk controls about 85% of shareholders’ voting power
The report stated that Musk currently dominates SpaceX’s shareholder structure through special Class B “super voting” shares.
Outside investors own Class A shares with one vote each, while Musk’s Class B shares carry 10 votes per share.
According to the SpaceX prospectus cited by the news outlet, Musk owns more than 5.5 billion Class B shares and controls about 85% of all shareholder voting power.
At other large tech firms, even executives with strong voting control have less influence, the report says.
By comparison, Mark Zuckerberg controls approximately 61% of the voting power on Meta Platforms, according to the NYT.
SpaceX’s prospectus openly acknowledged Musk’s dominance.
“Mr. Musk will have the authority to control the outcome of matters requiring shareholder approval, including the election of all of our directors, and to control our business and affairs,” the application stated.
The report also noted that Musk could potentially borrow against some of the restricted stock granted under the January compensation plan, with the approval of the board of directors he effectively controls.
Arbitration clause raises investors’ concerns
Some of SpaceX’s management policies have already drawn criticism from public pension officials, according to the NYT.
The news outlet reported that leaders who oversee pension funds in New York and California objected to SpaceX’s requirement that shareholder lawsuits be handled through mandatory arbitration rather than traditional court proceedings.
“Mandatory arbitration eliminates the class action structure necessary to recover widespread harms,” pension officials wrote in a letter cited by the NYT.
Officials also said no major U.S. company had ever gone public with such a provision before.
Comparisons with Tesla
Even Tesla, another company led by Musk, is frequently criticized for governance concerns and further restrictions on executive compensation voting rights, the NYT noted.
Tesla previously gave Musk a large stock package tied to operational milestones such as autonomous taxi deployment.
However, according to the report, Musk will not be able to vote on these shares until the agreed upon targets are achieved.
At SpaceX, by contrast, Musk can now vote for shares tied to future goals he has yet to realize.
Management experts warn investors
Corporate governance experts told the NYT that SpaceX’s structure should concern potential IPO investors. “This is a very bad situation for shareholders,” Quinn reportedly said.
Ann Lipton also expressed concerns about the company’s management model. “SpaceX’s corporate governance structure scares me.”
