Money and Drugs Entwine Musk With Tesla Directors
By Kirsten Grind, Emily Glazer, Rebecca Elliott and Coulter Jones · 5 Feb 2024
Board members at Elon Musk’s electric-car maker, Tesla, were facing a dilemma.
One director, the venture capitalist Steve Jurvetson, had left his firm after an internal investigation found he had slept with multiple women in the tech industry and used illegal drugs.
Some of the details had been splashed across the press in 2017, and Tesla directors informally discussed how they should handle it, according to people familiar with the situation. Some urged him to resign.
Luckily, Jurvetson, though designated an independent director, had a good friend with whom he had deep financial ties and also attended parties, using ecstasy and LSD: Musk.
Musk pushed directors in private conversations to allow Jurvetson to take a leave of absence from the board of the public company, and then step down on his own accord in 2020, the people said. Jurvetson remains a director at Musk’s privately held rocket company, SpaceX.
“The answer was do nothing and see what happens,” said another former independent Tesla director and good friend of Musk’s, Antonio Gracias, in a 2021 court deposition, when asked how the board handled the Jurvetson situation. Gracias and his venture-capital firm held investments recently valued at about $1.5 billion in Musk companies.
Multiple other directors of Musk companies have deep personal and financial ties to the billionaire entrepreneur, and have profited enormously from the relationship. The connections are an extreme blurring of
friendship and fortune and raise questions among some shareholders about the independence of the board members charged with overseeing the chief executive. Such conflicts could run afoul of the loose rules governing what qualifies as independence at public companies.
On Tuesday, a Delaware judge struck down Musk’s multibillion-dollar pay package at Tesla, saying board members who signed off on it in 2018 were beholden to Musk.
Several current or former directors at Tesla and SpaceX attend parties with him, go on exotic vacations and hang out at Burning Man, the Nevada arts and music festival.
Musk and these directors, including venture capitalists Gracias and Ira Ehrenpreis, tech mogul Larry Ellison, former media executive James Murdoch, as well as Musk’s brother, Kimbal Musk, have invested tens of millions of dollars in each other’s companies—Ellison held billions of dollars in Tesla shares in 2022.
Most members of Tesla’s current eight-person board have amassed shares worth hundreds of millions of dollars from their seats over the years, significantly more than what board members at other companies make for their service.
Tesla pays its directors mostly in stock options, and the current board, not including Musk himself, collectively has made more than $650 million selling shares from those options. They hold additional options valued at nearly $1 billion. Some directors agreed to return a portion of that compensation to Tesla to resolve a shareholder lawsuit about their compensation while denying any wrongdoing. A judge has yet to approve the settlement.
Some current and former Tesla and SpaceX directors have knowledge of Musk’s illegal drug use but haven’t taken public action, according to people who have witnessed the drug use or were briefed on it.
The Wall Street Journal reported in January that Musk has used drugs including cocaine, ecstasy, LSD and mushrooms, and that leaders at Tesla and SpaceX were concerned about it, particularly his recreational use of ketamine, for which Musk has said he has a prescription. Illegal drugs violate the companies’ policies and could put SpaceX’s federal contracts and Musk’s security clearance at risk.
At the Austin Proper Hotel, Musk has attended social gatherings in recent years with Tesla board member Joe Gebbia, the Airbnb co-founder and a friend, where Musk took ketamine recreationally through a nasal spray bottle multiple times, according to people familiar with the drug use and the parties.
Other directors, Gracias, Jurvetson and Kimbal Musk, have consumed drugs with him, according to people who have witnessed the drug use and others with knowledge of it.
Musk and some people close to him, including Kimbal Musk, attend parties at Hotel El Ganzo, a boutique hotel in San José del Cabo, Mexico, known for its art and music scene as well as drug-fueled events, according to people familiar with the parties.
The volume of drug use by Musk and with board members has become concerning, some of these people said.
In the culture Musk has created around him, some friends, including directors, feel there is an expectation to consume drugs with him because they think refraining could upset the billionaire, some of the people said. They also don’t want to risk losing the social capital that comes from being close to Musk.
Musk and his lawyer, Alex Spiro, didn’t respond to requests for comment.
In response to the Journal article in January about Musk’s illegal drug use, Spiro said Musk is “regularly and randomly drug tested at SpaceX and has never failed a test.”
After that article, Musk tweeted that in three years of undergoing random drug testing after a pot-smoking incident in 2018, “Not even trace quantities were found of any drugs or alcohol. @WSJ is not fit to line a parrot cage for bird [poop emoji].” He later tweeted: “If drugs actually helped improve my net productivity over time, I would definitely take them!”
Tesla’s general counsel and a SpaceX spokesman didn’t respond to requests for comment.
Some board members worry about the negative effects of Musk’s behavior on the six companies he oversees and the roughly $800 billion in assets held by investors, according to people close to Musk.
Despite the concerns, the Tesla board hasn’t investigated his drug use or recorded their worries into board minutes, which could become public.
Around the winter of 2022, Musk’s good friend and former Tesla board member, Ellison, urged him to come to his Hawaiian island to relax from work and dry out from the drugs, according to people familiar with the offer. The outreach came as friends and others close to Musk worried his drug use was getting worse, and some asked him to go to rehab, some of the people said.
Around the same time as the Ellison offer, Musk attended a party in the Hollywood Hills where he consumed a liquid form of ecstasy from a water bottle, according to a person who was there. Musk’s security guards asked people to leave the floor of the house for privacy before Musk took the drug.
Across Silicon Valley, executives sometimes invest in each others’ companies and ventures, and might have one or two personal friendships on a company board, especially before it goes public. Musk, because of the extent of his personal and professional board ties and the enormous amount of money involved, is the most prominent example of a chief executive who is intertwined with directors. The Journal traced connections by reviewing hundreds of pages of court documents and depositions, Securities and Exchange Commission filings and other public records.
The amount Tesla pays its directors is far more than the average compensation for boards at most U.S. companies. The average total compensation for board members in the largest 200 U.S. companies was $329,351 in 2023, according to a new report from the National Association of Corporate Directors and compensation consultant Pearl Meyer. By comparison, current Alphabet board members hold stock valued at about $8 million, and received an average annual compensation for board service of about $475,000 since 2015.
Beyond board pay, some Tesla and SpaceX directors have tens of millions of dollars in investments in Musk’s companies, including his brain implant startup, Neuralink, and his tunneling venture, The Boring Co.
Governance experts say the personal and financial ties could muddy directors’ views, and that it is highly unusual at U.S. public companies.
According to the rules of Nasdaq, where Tesla trades, an independent director can’t be an employee, a family member or someone whose relationship “would interfere with the exercise of independent judgment.” Nasdaq requires a majority independent board.
While rules governing independent directors are murky, financial entanglement is one area where courts have sometimes found public companies at fault for claiming directors’ independence while they hold investments tied to one another.
Amalgamated Bank, which managed around $180 million of investments in Tesla as of September, signed a shareholder letter last year asking Tesla board members to step up their “meager oversight” of Musk.
The investors expressed concern that the close ties between Musk and several Tesla directors make the board ill-equipped to act in the best interest of shareholders.
Some directors view Musk as a once-in-a-generation genius, with a brilliant mind and unusual methods. In depositions and courtroom testimony, directors have said they think Musk’s leadership is crucial to both Tesla and SpaceX. Tesla’s stock is up more than 300% in the past four years, but has dropped about 25% since the beginning of January.
When striking down Musk’s pay package on Tuesday, the Delaware Court of Chancery judge called the process for approving it “deeply flawed” and cited Musk’s “extensive ties” to some directors.
Musk “enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan,” wrote Chancellor Kathaleen McCormick in the opinion. She described board Chair Robyn Denholm’s approach to her oversight obligations as “lackadaisical.”
Tesla board members can appeal the decision to the Delaware Supreme Court. After the ruling, Musk posted on X saying, “Never incorporate your company in the state of Delaware” and said Tesla would hold a shareholder vote about incorporating in Texas.
Board members had signed off on the pay deal in 2018, with Tesla valuing it at a maximum of $55.8 billion. It was the biggest pay package ever to the chief executive of a U.S. public company, according to governance-data firm Equilar.
Ehrenpreis, a yearslong friend, was head of the board’s compensation committee.
Questions about a public director’s independence have gone to the courts, with judges sometimes finding problems with deep financial ties.
The Delaware Supreme Court in 2016 ruled that the majority of videogame developer Zynga’s board weren’t independent. Among the reasons was that a venture-capital firm two directors worked for had invested in a startup the CEO’s wife cofounded and that another director and her husband co-owned a private plane with the CEO.
“To me, it’s really: Are you capable of making a disinterested, objective decision uninfluenced by the relationship?” said Lawrence Hamermesh, former director of the Widener Institute of Delaware Corporate and Business Law, who has also served at the SEC.
Turning to friends
When Tesla was looking to replace a departing director, it turned to a familiar face in JB Straubel. The board believed the company’s former chief technology officer, whom Tesla considers a co-founder, was someone Musk would listen to, could fill Ellison’s shoes and had technical expertise, according to people with knowledge of the board’s thinking.
Last year, ahead of a vote to approve Straubel, some shareholders pushed back over his close ties to the company, saying if he were added then at least five of the eight members would lack independence. Straubel was elected anyway.
Musk has surrounded himself with close friends as he built his business empire. His brother, Kimbal Musk, previously served on the SpaceX board and counseled Musk on whether to start OpenAI and Neuralink.
Ehrenpreis, who chairs two of four committees on the Tesla board, is designated independent by the company and has been close to Musk for years.
Ehrenpreis has personally or through his venture-capital firm, DBL Partners, invested in many of Musk’s ventures, totaling about $70 million.
On the Tesla board, he has made more than $220 million on stock sales earned through board service and has additional options worth more than $200 million at recent prices.
James Murdoch, former chief executive of 21st Century Fox, also is classified independent by Tesla. His friendship with Musk dates back to around 2006, and he has vacationed with Musk and their families, including on trips to Israel and Mexico.
Murdoch, who is the younger son of Rupert Murdoch, chairman emeritus of News Corp, which owns The Wall Street Journal, has said in court testimony he considers himself independent. He poured $20 million into SpaceX, and a company controlled by him invested about $50 million in the space company, court records show.
Denholm, who is designated independent, is based in Australia and doesn’t socialize with Musk. She has said in court testimony she doesn’t have personal investments in Musk’s other companies.
Her decadelong position on the Tesla board has earned her more than $625 million in the company’s equity. Denholm has exercised about half her options, profiting more than $280 million from the sales.
Gebbia, the Airbnb cofounder and friend of Musk’s, joined the Tesla board in 2022, lives in Texas and is designated an independent director.
Former Walgreens Boots Alliance executive Kathleen Wilson-Thompson, who joined the board in 2018, is designated independent and doesn’t have public ties to Musk.
Three current and former Tesla and SpaceX board members have been among Musk’s closest personal and financial partners. Ellison, the co-founder and current chief technology officer of Oracle, was designated independent during his board tenure at Tesla between 2018 and 2022. He has said “I’m very close friends” with Musk and has hosted him multiple times at his Hawaiian island, Lanai.
When Musk revealed plans to buy Twitter, Ellison committed $1 billion in 2022, while still on the Tesla board, to help fund it, surpassing the investments of many of the venture-capital firms involved in the deal.
Gracias, whom Tesla classified as the company’s lead independent director from 2010 until 2019, has been close friends with Musk for more than two decades. Musk turned to Gracias for support after his baby son died in the early 2000s, according to a 2021 court deposition.
He is also one of the friends who attends private parties around the world and sometimes consumes illegal drugs with Musk.
Gracias has made more than $100 million by selling shares earned on the Tesla board. When Musk needed cash, Gracias lent him $1 million, Gracias said in a court deposition, though it is unclear when or what for. Musk has also personally invested about $10 million in Gracias’s Valor Equity Partners.
When asked in a court deposition whether his close friendship and business relationships with Musk affected his ability to act as an independent director at Tesla, particularly related to Musk’s 2018 pay package, Gracias said it didn’t. “Otherwise, I wouldn’t have done it,” he said.
Gracias stepped down from the Tesla board after more than a decade in 2021 in response to the pressure to improve its corporate governance. He remains a SpaceX director.
Jurvetson is one of Musk’s closest friends, and the two have mixed friendship and business for years. Jurvetson was an early investor in SpaceX, and the two have used LSD and ecstasy together.
Former Tesla board member Linda Johnson Rice wasn’t close with Musk or other directors outside of work. She didn’t stand for re-election to the board in 2019 over frustration with Musk’s volatile behavior, including his drug use, the Journal reported.
Similarly, Hiromichi Mizuno, a former chief investment officer of Japan’s Government Pension Investment Fund, left the Tesla board in 2023 after three years in part because of the lack of ability he felt he had to work on improving the company’s governance-related practices.