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The Tesla company under Elon Musk is believed to have chances to face a lawsuit at any point, that’s why the financial backing to sail through those days cannot be overemphasized.
Tesla Inc (NASDAQ: TSLA) Chief Executive Officer Elon Musk is set to receive the sum of $3 million for the indemnity coverage he reportedly provided to the company’s directors and board members. As reported by CNBC, the $3 million paid to Elon Musk comes as a reimbursement to the Tesla CEO who inked an earlier agreement with the company to cover the lawsuit costs for the company’s key figures up to 90 days for an amount up to $100 million.
For a company whose board members are predisposed to lawsuits, the company came out in April this year to state that it is withdrawing the Directors and Officers (D&O) liability insurance for a year citing very high costs in premium back then. Elon Musk took the reins in order to prevent this from happening and offered to provide the coverage. The move to cover these premiums by Elon Musk has been faulted by legal analysts who believe that the board would be unfairly indebted to the CEO which may hamper their effective oversight of the CEO’s activities.
The company paid out the CEO the reported amount which was prorated for the initial 90 days and stated that it has secured the deal of a third-party premium insurance service firm to provide the indemnity cover for its D&O.
“I don’t think that it was advisable for the chief executive officer of the company to indemnify the company and directors. It linked the directors too closely to the CEO because of that relationship. The CEO is an individual over whom the board has authority. And such a linkage would make it more difficult for board members to exercise good oversight on behalf of all shareholders,” said Charles Elson, a professor of corporate governance at the University of Delaware.
Elon Musk and Tesla Occasionally Have Lawsuits to Battle
The Tesla company under Elon Musk is such that may face a lawsuit at any point in time and as such, the financial backing to sail through those days cannot be overemphasized. As CNBC reported, Tesla is currently facing a high stake lawsuit, particularly as it relates to the performance and longevity of its car batteries as well as the plans to purchase SolarCity, a renewable energy startup based in Fremont California.
The lawsuit faced by any company Tesla inclusive may have different respondents to it ranging from the company as a whole to any of its board members. Notable among the legal tussle the company has faced in the past include but not limited to the lawsuit against Alameda County over the shutdown order is issued for Tesla’s factory earlier in the year. Elon Musk has also faced lawsuits from shareholders particularly for his actions and polarizing tweets, most notorious include his tweet to take Tesla private.