SpaceX has reportedly introduced a series of unconventional corporate governance arrangements that appear to further strengthen the power of founder and CEO Elon Musk ahead of what could become one of the largest initial public offerings in history.
According to a report by The New York Times, the company granted Musk a massive restricted stock package earlier this year while also structuring voting rights, board oversight and shareholder protections in ways that governance experts argue overwhelmingly favor Musk over outside investors.
SpaceX, which has been valued at more than $1.25 trillion, is reportedly preparing for an IPO that could launch as soon as next month.
Musk granted voting rights on shares he has not earned
According to the NYT report, SpaceX awarded Musk 1.3 billion restricted shares in January under a compensation package tied to ambitious milestones, including establishing a Mars colony with one million inhabitants and deploying powerful data centers into space.
Although Musk has not achieved those goals, the report said he is still allowed to vote those shares in shareholder matters.
Corporate governance experts told the NYT the arrangement is highly unusual.
“I have never heard of this,” Ann Lipton, a law professor at the University of Colorado Boulder, told the news outlet.
“He basically found a way to hack the normal rules of corporate organization,” she added.
The report noted that most companies only grant voting rights after performance targets are achieved.
Governance rules heavily favor Musk
The NYT reported that SpaceX also disclosed several other governance arrangements that differ sharply from traditional public companies.
According to the report, SpaceX:
-Does not plan to maintain a majority-independent board
-Will not rely on an independent compensation committee to determine executive pay
-Requires shareholder disputes under federal securities law to go through arbitration rather than court proceedings
Governance experts told the news outlet the measures effectively shield Musk from outside challenges while tightening his grip over the company.
“These measures are a defensive moat,” Brian Quinn, a law professor at Boston College, told the NYT.
He added they would “entrench him permanently” as chief executive.
Quinn also described Musk’s January compensation package as “insane,” according to the report.
Musk controls about 85% of shareholder voting power
The news report said Musk already dominates SpaceX’s shareholder structure through special Class B “super voting” shares.
Outside investors hold Class A shares with one vote each, while Musk’s Class B shares carry 10 votes per share.
According to SpaceX’s prospectus cited by the news outlet, Musk owns more than 5.5 billion Class B shares and controls approximately 85% of all shareholder voting power.
The report noted that even executives with powerful voting control at other major technology firms hold smaller influence.
For comparison, Mark Zuckerberg controls about 61% of voting power at Meta Platforms, according to the NYT.
SpaceX’s prospectus openly acknowledged Musk’s dominance.
“Mr. Musk will have the power to control the outcome of matters requiring shareholder approval, including election of all our directors, and to control our business and affairs,” the filing reportedly stated.
The report also noted that Musk could potentially borrow against some of the restricted shares awarded under the January compensation plan with approval from the board he effectively controls.
Arbitration clause sparks investor concerns
Some of SpaceX’s governance policies have already triggered criticism from public pension officials, according to the NYT.
The news outlet reported that leaders overseeing pension funds in New York and California objected to SpaceX’s requirement that shareholder lawsuits be handled through mandatory arbitration instead of traditional court proceedings.
“Mandatory arbitration eliminates the class-action lawsuit structure essential to remedying widespread harms,” pension officials wrote in a letter cited by the NYT.
The officials also said no major US company had previously entered an IPO with such a provision.
Comparisons with Tesla
The NYT noted that even Tesla — another Musk-led company often criticized for governance concerns — imposes more restrictions on executive compensation voting rights.
Tesla previously granted Musk a major stock package tied to operational milestones such as autonomous taxi deployment.
However, according to the report, Musk cannot vote those shares until he achieves the agreed targets.
At SpaceX, by contrast, Musk can already vote shares tied to future goals he has not yet accomplished.
Governance experts warn investors
Corporate governance experts told the NYT that SpaceX’s structure should concern potential IPO investors. “It’s terrible for shareholders,” Quinn reportedly said.
Ann Lipton also expressed alarm over the company’s governance model. “SpaceX’s corporate governance structure freaks me out.”