A Delaware judge ruled Tuesday that Tesla CEO Elon Musk does not deserve billions of dollars in compensation awarded to him by directors in 2018, against the will of supermajority shareholders and the board of directors. was lowered.
Chancellor Katherine McCormick may have unwittingly set the stage for the accelerated erosion of Delaware’s dominance and the rise of a competitive business court network in Texas. As it turns out, Musk has no intention of continuing to suffer abuse in the Diamond State.
judge’s decision
Several years ago, a shareholder lawsuit was filed against Musk and Tesla’s directors.
McCormick characterized the complaint Tuesday as follows:
opinion: “Did the world’s richest people pay too much? So say shareholder plaintiffs in this representative lawsuit. [Richard Tornetta] The lawsuit alleges that Tesla’s directors breached their fiduciary duties by giving Elon Musk a performance-based stock compensation plan. ”
2018
compensation contract is structured around 12 tranches of stock options, whereby Musk unlocks additional options as he achieves various operational milestones and market capitalization targets. The value of this paid plan is valued at up to $55.8 billion.
new york times
was suggested At the time, it was described as “the most audacious pay plan in company history” and that “Mr. Musk will only be paid if he achieves a series of remarkable milestones.”
For Mr. Musk to line his pockets, he will first need to enrich shareholders and increase Tesla’s market value from $50 billion to $650 billion. In theory and in practice, everyone wins.
The attorneys told the Delaware Court of Chancery that the pay plan was fairly negotiated by an independent compensation committee, set incredibly ambitious milestones, and legally required unnecessary shareholder compensation. He said it was also approved by vote.
report Associated Press.
judge,
nominated by Biden allies and Delaware Gov. John Carney (D) suggested that the task of “proving the fairness of the largest potential compensation plan in the history of the public market” was “an impossible task.”
McCormick, the same judge who fatefully blocked Musk’s withdrawal from the Twitter deal, said in his ruling that the South African billionaire had “deep ties with the directors tasked with negotiating on Tesla’s behalf.” “The board of directors was controlled by the board of directors.” approval of his compensation plan; ”
“The compensation committee and Mr. Musk were not in disparate positions,” the judge continued. “They did not acknowledge the existence of a conflict. It was a cooperative and collaborative process.”
Mr. McCormick ultimately voided the salary agreement.
people’s decisions
Mr. Musk did not take the news well, but
Post X says, “Never incorporate a company in Delaware.”
Clearly not wanting to give McCormick the last word, Musk asked X’s more than 170 million followers, “Should Tesla change its legal status to Texas, where its physical headquarters are?” .
Axios
I got it. Texas Governor Greg Abbott (R) announced the ratification of HB 19 in June 2023, creating a business court in the state to address complex commercial disputes. The court is scheduled to open on September 1, 2024, according to law firm Sidley Austin LLP.
“The creation of these new courts may ultimately make Texas a more attractive place to resolve business disputes,” the law firm said.
More than 1.1 million X users took part in Musk’s poll and overwhelmingly voted in favor of changing Tesla’s state of incorporation to Texas. The final result was 87.1% in favor and 12.9% against.
Following the landslide vote, Texas Governor Greg Abbott (R) said:
I have written“Elon, it’s over. The campaign desk is declaring a landslide victory in Texas.”
Texas Senator Ted Cruz
tweeted“of course.”
After various groups and users gathered for celebration,
include Elon Musk of the Texas Business Association declared, “The people’s vote is unequivocally in favor of Texas! Tesla intends to immediately hold a shareholder vote to move its state of incorporation to Texas.”
significance
Garland Kelly, a partner at Texas-based Looper Goodwine PC, told Axios that Tesla’s reincorporation into the Lone Star State is “a bit of a legal battle” between Democratic-controlled Delaware and Texas. He said it could signal the beginning of a “war”.
Today, more than 65% of Fortune 500 companies are incorporated in Delware.
“If you’re a start-up or an established company like Tesla and you’re unhappy with the legal product that the Delaware courts are creating, are there any alternatives?” Kelly said.
Kelly further suggested that “the Texas Business Court represents that alternative.”
Brian Cheffins, professor of corporate law at the University of Cambridge, said:
Said Reuters said there is no guarantee that Musk will not experience similar hostility in the Lone Star Nation.
“Musk must believe that Texas judges are more ‘business friendly’ than Delaware judges. …Musk believes that Texas judges have discretion in assessing executive compensation. , I’m sure you’re assuming they’re going to take a more relaxed approach to this issue than Delaware’s judges,” Cheffins said. “It’s not clear whether Texas will do that.”
The Texas Business Court is comprised of seven judges appointed by Mr. Abbott with the advice and consent of the Senate. A judge in a court must have at least 10 years of relevant experience.
Reincorporation could also expose Musk to further lawsuits. TripAdvisor, for example, is being sued over its plan to abolish Delaware and reincorporate in Nevada.
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