Elon Musk’s Influence and SpaceX’s Unusual Governance

SpaceX has structured its board and Elon Musk’s compensation in ways that seem to favor him over other shareholders, according to corporate governance experts.

Central to Musk’s authority over SpaceX is his command of “super voting” shares.

In January, SpaceX offered Musk, its founder and chief executive, a pay package of 1.3 billion restricted shares. The award depended on SpaceX setting up a Mars colony with one million residents and launching advanced data centers into space.

Although Musk has not met these objectives, he can still vote these 1.3 billion shares in shareholder decisions according to SpaceX’s offering prospectus, released on Wednesday. Effectively, the company lets Musk vote with shares he hasn’t yet earned.

“I have never heard of this,” noted Ann Lipton, a law professor at the University of Colorado, Boulder. “He basically found a way to hack the normal rules of corporate organization.”

These restricted shares aren’t the only distinctive corporate setup SpaceX unveiled as it readies for what might be the largest initial public offering (IPO) ever.

The company, which constructs rockets and operates the Starlink satellite internet service, values itself at more than $1.25 trillion. Its upcoming IPO, potentially happening next month, could create substantial gains for Wall Street, Silicon Valley, and Musk himself.

Among the unusual arrangements, SpaceX doesn’t plan for a majority of its board to be independent members. The company also indicated it wouldn’t use a committee of independent board members to determine executive pay, as is customary. Furthermore, its governing documents state that any shareholder claims under federal securities law must be handled through arbitration.

These moves seem to primarily benefit Musk. The strategies provide him enhanced control over a company where he holds 85 percent of shareholder votes. These measures allow Musk to appoint more insiders to SpaceX’s board, choose those who decide his compensation, and largely shield himself from shareholder lawsuits.