The role of the shareholder, the profit of undertaking and the future of Tesla

At the beginning of August, Tesla's board of directors, once again, awarded a 'mega' variable remuneration to Elon Musk: $29 billion on the condition that he remains CEO for two years and sells shares five years from now. The shareholders' meeting will be called to vote on this remuneration in November and this award is nothing more than an insurance for Musk with respect to the stop that the Delaware court gave in November 2028 to a similar package awarded to him in 2018 on which familyandtrends has already spoken.

The case is, of course, extreme and, for that very reason, allows for a clearer analysis of certain elements regarding the theory of remuneration that are also useful for family businesses.

First, the difference between the profit of the entrepreneur and the manager. Schumpeter defined the entrepreneur's profit as follows: "This realisation of the new in the economy is not a routine job, indeed by certain peculiar characteristics it is its opposite: it represents a special task and has the special difficulties and risks which are characteristic of any action which does not follow the tracks of experience tested by practice; it requires other qualities of both intellect and will. These are rare qualities... The essence of the entrepreneur consists in fulfilling the function of realising the new; the profit derived is the true profit of undertaking'. With this in mind, Tesla's board of directors is prepared to offer 2/3% of the company for Elon Musk's entrepreneurial ability to realise the company's future vision, a vision made up of fleets of self-driving taxis and legions of humanoid robots. It does not matter so much whether this vision is shared or not, for those who do not share it, the stock market offers the possibility of 'voting with their feet', i.e. selling; it is interesting that in order to 'realise the newen' the board is willing to offer a huge sum as 'profit from undertaking'. In family capitalism, this case contributes to reasoning about who is entitled to this profit: the managers, the family members involved in apical roles and with entrepreneurial responsibilities, the entrepreneurial family as shareholder.

The second, the role of the shareholder. Musk now owns about 13% of Tesla and would go up to about 16% with the 'super variable', the Economist claims that in order to develop artificial intelligence and robotics projects within the company he wants to get to own about 25% to avoid the risk of being kicked out by activist investors and funds and, one can imagine, to have a greater appreciation gain from his share. familyandtrends argues that a good shareholder must contribute capital, knowledge of the company and the competitive sector, and rigour. It cannot be said that Tesla's other shareholders have not invested, they may even be able to point to board members who can debate the future of intelligent robotics with Musk, but to ensure rigour in the execution of the vision they should not hand over complete control to those in charge. In family capitalism, this second element helps to remind us how important the mechanisms of checks and balances that protect against the mistakes of the 'one man in charge' are.

Third, the relationship between investors/owners and workers/executives. Tesla accounts for less than half of Musk's wealth, the rest is in SpaceX, X, xAI (recently merged into X) and smaller stakes in other technology companies; this gives him enormous leverage in the power relations with his partners in Tesla: to distribute his talents among the various companies he doesn't have to quit and go to another one like a CEO should, he just needs an alt-tab to change the page on his computer and start developing another one of his ventures. For example, the Economist points out that in June, SpaceX invested $2 billion in xAI and the Nvidia chips ordered by Tesla were diverted to xAI: this highlights how it is not just the entrepreneur's time and dedication to 'hop' from one side to the other. This freedom, perhaps excessive, makes investors/owners even weaker by Tesla's current poor performance, which makes Musk's attentions even more necessary. In family capitalism, the balance between the owning family and outside managers (when present) is necessary for the development of the enterprise; when it fails, it is not just the weak party that suffers, but the enterprise and those who work in it.