When the 'Chute Fails

Golden Parachutes, Bad Faith Arguments, and the Rise of Norm Busters

One thing that Elon Musk and Donald Trump appear to have in common is a willingness to flout rules that have — in the main — traditionally been followed without incident. This is true even where skipping out on such responsibilities or legal obligations might have been pleasurable, or financially beneficial, or otherwise what a self-interested player might have chosen to do — nonetheless, in many circumstances throughout history, businesses and individuals chose to do what they had contracted to do, not because there was no feasible way out of the deal, but because it made sense to just be a person of integrity.

The rules that might be voted “Most Likely to be Flouted” in high school superlative terms are generally those enforced by societal, reputational, and policy pressures — not by strong, bright-line consequences or rigid and swift application of the legal system. Perhaps it is a coincidence. Perhaps it is because people who would flout such rules and laws know that the civil justice system is slow, plodding, and expensive. Due to the inherent imbalance in the system, it might be easy — when one, say, has access to nearly unlimited resources for legal counsel — to starve one’s opponent out of justice by force of a long, relentless slog in various civil proceedings.

Such is the case in the newest “flout du jour” in which Musk appears to have centered himself. Although it’s not news that Musk fired Parag Agrawal, Vijaya Gadde, and Ned Segal “for cause” on October 26th, just as he was closing the merger, it does seem that it should be newsworthy to note that two months later, Musk appears to have taken the further step of withholding their contractually-owed golden parachute payments. (If you want an excellent conceptual argument for why we should not allow golden parachute promises to be flouted as a policy matter, Matt Levine does what only Matt Levine can do in explaining the whole thing for you, here. What I am talking about here is more specifically why this contractual promise should be enforced, which is not entirely overlapping with “why we should learn to love golden parachutes” — because whether or not you think they are good from a policy perspective, this one exists, and imho, we should all give an ish about the rules, just like Walter implied.)

In Form 4 filings made with the SEC on Friday, December 2nd, Agrawal, Gadde, and Segal went on record with the amounts they believe are owed to them under the terms of their severance agreements.

While there is little doubt that the vested portions of the stock reported on the Form 4s were paid out by operation of the merger agreement, it appears that the unvested portions (both in Issuer RSUs and Issuer PSUs) have not been paid out. So, let’s dig into what these terms mean, what contracts are being flouted, and why we might want to care.