The Delaware court striking down Elon Musk's $50B pay package will garner a lot of headlines and clicks.
As a corporate lawyer, I have two key observations:
1. This case highlights the increasing importance in Delaware of process. The entire fairness doctrine measures not just what is fair to the shareholders, but the process the board used in making the decision. The judge in this case stresses that the board must act independently of the executive and seek to be better informed - particularly where you have a celebrity CEO.
2. Let's not rush to reincorporate in [insert western state not called California]. This case has folks calling for reincorporation in Texas or Nevada. These are nice places to watch Football this time of year, but Delaware is by far the best choice for most businesses. Delaware law is pro-business and pro-management (despite this ruling). Delaware also has well developed law on corporate matters, cases are heard by experienced judges and not juries and there is one level of appeal. This results in clear application of the law and lower costs of operation.
So, let's have some fun imagining what we would do with $50B of Tesla stock, but forget about re-incorporating out of Delaware.
Few, if any, chief executives are so closely identified with their products, or seen as such an essential part of their companies’ success, as Mr. Musk. In her decision, Ms. McCormick suggested his status as a “superstar” chief executive has a downside. It “creates a ‘distortion field’ that interferes with board oversight,” she said.
https://www.nytimes.com/2024/01/31/business/tesla-elon-musk-pay-package.html
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