A Delaware judge has approved a settlement that requires both past and present non-executive directors of Tesla to return nearly $920 million in compensation. This ruling concludes a contentious legal battle that has raised concerns about the company’s board practices, especially under the leadership of Chairwoman Robyn Denholm.

The settlement was officially greenlit by the Delaware Court of Chancery on Wednesday, following a lawsuit filed by the Police and Fire Retirement System of the City of Detroit in 2020. This legal action accused Tesla’s board of awarding themselves excessive compensation from 2017 to 2020, a period during which Tesla’s stock value soared, thereby inflating the worth of stock options dramatically.

The terms of the settlement include:

• Cash return: Roughly $277 million will be returned in cash.
• Stock options: An additional $459 million worth of stock options must be relinquished.
• Forfeiture: Directors will also forgo $184 million in stock options that were to be awarded for the years 2021-2023.

This settlement does not involve CEO Elon Musk, whose own compensation package remains under separate legal scrutiny. Notably, neither Tesla nor its directors admit any wrongdoing under this agreement, and the specifics of how much each director must return are not disclosed.

Robyn Denholm, who succeeded Musk as board chair in November 2018, has been at the epicenter of this controversy. Known for her significant financial gains from Tesla, Denholm once described her earnings from her board tenure as “life-changing wealth,” amounting to around $280 million from stock options alone. However, her leadership has not been without criticism. Proxy advisory firm ISS recommended shareholders vote against her reelection in both 2020 and 2023, citing governance concerns.

The Tesla board’s composition has often been scrutinized due to its close ties with Musk. The board includes personal friends and business associates of the CEO, including his brother Kimbal Musk. Such relationships have raised questions about the board’s independence and decision-making impartiality.

Further complicating Tesla’s corporate governance narrative was The Wall Street Journal report from the beginning of 2024, detailing Musk’s recreational drug use alongside board member Steve Jurvetson, highlighting potential conflicts of interest and lapses in oversight.

Another governance flashpoint was Musk’s 2018 compensation package, which was once hailed as the largest in corporate history. In a court hearing, it was revealed that Musk essentially negotiated his own terms, a process that was later critiqued as lacking the necessary arm’s-length negotiation. This package was subsequently voided by Chancellor Kathaleen McCormick, who issued a scathing 200-page verdict on its approval process.

Despite an attempt by Denholm to rectify the situation by proposing a new shareholder vote on the package, this was overruled by McCormick. Tesla has since appealed this decision, pushing the matter towards the Delaware Supreme Court.

This settlement not only rectifies an instance of alleged overcompensation but also underscores ongoing issues with Tesla’s board structure and governance practices. It serves as a reminder of the delicate balance companies must maintain between rewarding leadership and ensuring accountability to shareholders.