SpaceX’s Race to Mars is a Potential Race to the Bottom for Investors Who Have No Say

SpaceX’s recent record-setting initial public offering shocked capital markets with its sheer size. Yet, the stock has failed to truly launch. The volatility and possible overvaluation of the company pose an important question: will this stock continue to go where none has gone before or will investors be left lost in space, with little ability to protect themselves as index providers allow poor governance practices to go unaddressed?

Investors are now buying into a company with unusually concentrated control, limited independent oversight, and few meaningful tools to challenge decisions that may harm shareholder value. The consequences extend far beyond those who actively choose to buy SpaceX shares. Millions of investors, including the five New York City public pension funds that I advise and serve as custodian to in my role as Comptroller, will soon own shares in the company through the use of passive investment strategies.

For decades, passive investing has offered investors low fees and steady returns because it simply tracks an index. But that comes with a tradeoff: passive investors can’t sell their shares in an individual company when they have concerns about management, the board, or performance. SpaceX’s dual-class structure, paired with the adoption of Texas’s 3% holding threshold (translating to roughly $67.5 billion today) effectively eliminate these rights, diluting the power of a single share so investors have no viable voice when submitting proposals, voting against directors, or taking the company to court.

Major index providers like the FTSE Russell, the index that New York City’s and many other public pension funds track with a portion of their passive investments, has recently implemented a fast-entry rule. This decision allowed SpaceX to be added to the index within days of their listing, limited market standard oversight and due diligence and allowed the troubling governance structure of SpaceX to go unaddressed. Nasdaq is doing the same, setting a dangerous new precedent.

As a trustee of New York City’s pension funds, I and many investors across the country have called for the slowing of SpaceX’s inclusion to their respective indexes, and requested SpaceX make immediate adjustments to their governance structure.

While SpaceX’s technical achievements are extraordinary, its governance should be worthy of the public markets it is entering. And while SpaceX has a bold long-term vision to reach Mars, its success depends on the investors it is trying to silence here on Earth.

Shareholder oversight has historically been a crucial tool to ensure checks and balances for public companies. Independent directors and shareholder voting rights power the very innovation SpaceX seeks to harness by addressing risk the company may not be focused on. They are the foundation of the investor trust that characterizes healthy capital markets and has long anchored the global financial system.

Musk retains approximately 79% of the company’s voting power while holding approximately 42% of its economic interest. He can’t be removed as CEO, CTO, or board chair without the approval of the very class of shares he controls.

The company has elected “controlled company” status, allowing it to avoid key requirements for independent board oversight. It has imposed mandatory arbitration on shareholder claims and adopted legal barriers that could make shareholder litigation effectively impossible.

In effect, SpaceX is asking public shareholders for capital while simultaneously locking them out of the boardroom and courthouse – the two places where corporate accountability is imposed.

This is textbook Elon Musk. It wasn’t long ago he was found liable for artificially driving down stock prices and defrauding Twitter investors during his acquisition of the company. And Tesla’s settlement with the SEC led to the placement of an independent chair to strengthen board independence and accountability. Before SpaceX had a single public shareholder, Musk orchestrated an all-stock acquisition of his own artificial intelligence company, xAI, effectively negotiating from both sides of the table.

Tesla subsequently invested billions of dollars in SpaceX, and the two companies are jointly developing a semiconductor facility. Ordinarily, investors would rely on independent directors to evaluate such transactions, negotiate on behalf of shareholders, and ensure that insiders are not receiving preferential treatment.

The combination of one of the most management-friendly governance structures by a publicly-traded company and fast-tracked entry by major index providers has stacked the chips against institutional and retail investors holding public equities.

Troubling governance patterns under publicly traded companies led by Elon Musk have been consistent: move compensation outside governance checks, relocate to friendlier jurisdictions when courts push back, entrench Musk against removal. That is not innovation. That is insulation.

SpaceX is effectively attempting to build a new world in the public markets while sending an alarming message to investors: give us your money but don’t expect a voice.