This is hugely important. What’s happened here is the first time I’ve seen a major corporation do this and the law was only changed to allow it to happen in 2022. Does this mean Delaware corporations are going to move in larger numbers? This could extract a lot of companies into other states and cause a real big split among corporations and their tax bases. It could cause states to start competing for this incorporation too.
States incorporate in Delaware for a reason. Isn’t Elon’s move just because his pay ask was rejected in Delaware? It wasn’t a move based on fundamentals. I don’t see why other companies would do this.
His Tesla pay ask was rejected. He wants to move Tesla too but that's going to be much tougher: Tesla is a public company and some of its shareholders will probably object and sue. SpaceX is a private company with many fewer investors who are presumed to be sophisticated, so they can pretty much do whatever they want with very little oversight.
For context, Elon's comp was also put to a vote in an annual meeting, passed, a minor shareholder (9 shares) filed a lawsuit and here we are.
In the case of Tesla in Delaware at least, the court did not optimize for shareholders wishes. This is what has Elon wanting to move out of Delaware as much as the comp.
It wasn’t an ask. It was a payout agreed to by the board and shareholders if and only if he added a trillion dollars of value to the company. He did that, and now a court denied the deal.
If my company signed a deal where I would get an astronomical bonus for pulling off the impossible then reneged when I did it I would be pretty pissed.
That's why you don't negotiate your pay package "against" someone who was also your personal lawyer. If it wasn't for massive conflicts of interest in the process of him getting that deal, it never would have been overturned.
The law in question was one that required unanimous shareholder approval for moves. Now it just requires majority approval.
I can find plenty of articles talking about the repeal of that law in 2022, but I haven't found one that tells me when it was enacted. Does anyone happen to know?
In 1993 Microsoft moved from Delaware to Washington. Microsoft went public in 1986 and so I'm having a hard time imagining that they could have gotten unanimous shareholder approval for anything in 1993 and so infer that the unanimous requirement law came sometime after that.
Companies and investors want stability and consistency. Elon moved SpaceX because he's upset about accountability and governance of corporate structures. It likely won't impact investment from "friends and family" or other individuals who don't mind the volatility for the potential returns and lack of liquidity if private Elon companies stay private to avoid said governance and accountability, but Fidelity might think twice at the next raise.
> Of course, this is the reason to incorporate in Delaware: Someone is keeping an eye on managers and boards of directors to make sure that they’re running the company in the best interests of all of the shareholders, not just those of the idiosyncratic controlling founders. You can raise capital from investors more easily, because the investors trust that there are rules to protect them, that they are not subject to the whims of self-interested entrepreneurs.
> And yet there is something awkward about a judge second-guessing the CEO compensation decisions of the board of directors of a $600 billion company, even if, yes, it’s the board of Tesla. Musk wanted this pay package, Tesla’s board thought it was a good idea to give it to him, and a majority of Tesla’s shareholders voted to approve it. And then Musk did in fact create a trillion dollars of shareholder value, earning his big pay package and making the shareholders happy. Most of them. But one complained, and that’s enough for a judge to reverse the board’s decision.
> This is not a Delaware thing, really, though it is possible that business courts in Texas or wherever might be more sympathetic to CEOs generally, or to Musk specifically. (Bloomberg reports that “Musk also asked X devotees Tuesday to vote on whether he should shift Tesla’s incorporation papers to Texas,” sure.) It is a public company thing: If you run a public company, not only do you have corporate-law fiduciary duties to your shareholders, but you also have genuinely outside shareholders, index funds and activists and gadflies and anyone else who wants to buy stock. If you run a private company, even one incorporated in Delaware (as, for instance, SpaceX is), you can have a lot of control over who your shareholders are, and you can run the company the way they want, which is usually also the way you want. If you run a public company, you have no control over who gets to be a shareholder, or what they can complain about, or what a court will make of their complaints.
> You know what’s really awkward? A few weeks ago, even as this decision was pending, Musk was out publicly demanding another giant stock grant from Tesla’s board. The threat that was implicit in the 2018 pay deal — if the board didn’t shower Musk with options, he’d take his attention to SpaceX or elsewhere — is explicit today; Musk posted that he’s “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control,” and that “unless that is the case, I would prefer to build products outside of Tesla.”
Levine also explained that Delaware is such a popular place for companies because the law there is predictable and there is a (non-jury) fast track for company disputes. Losing $50 billion in a court case is not predictable. But moving to a politically friendly (republican) state likely could be?
> Still, I mean, the bet here for Elon Musk is reasonable: If he moves Tesla to Texas, and then demands that Tesla’s board pay him $100 billion to keep a reasonable fraction of his time and attention on Tesla, and Tesla’s extremely accommodating board says “sure whatever you want,” and a majority of shareholders approve the pay package, and one disgruntled shareholder sues, and the case goes to Texas business court, and the complaining shareholder comes into court citing conflicts of interest and the board’s lack of independence and the Delaware cases on “entire fairness,” and Elon Musk comes into court saying “well that may all be true but what you are missing is that I am Elon Musk,” and Texas Governor Greg Abbott is in the first row of spectators with a big sign saying “TX <3 U ELON,” is the Texas business court, in its first real high-profile case, going to say “actually it’s illegal to pay Elon Musk that much”? It absolutely is not. That much is pretty predictable.
> Losing $50 billion in a court case is not predictable.
Having your $50 billion payment case heard is not predictable. This whole situation is so unique, I'm not sure anything here generalises past Elon and Bezos.
> Losing $50 billion in a court case is not predictable.
Shareholders, a different group of whom are supposed to be benefited by this new move, gained $50 billion in the court case. About 10% of the value of the company. Even Musk, in his role as shareholder, not employee, benefited with a massive win.
> And then Musk did in fact create a trillion dollars of shareholder value, earning his big pay package and making the shareholders happy.
Apart from the usual CEO worship, isn't the fact of the case that the rewards were assigned for targets that internally were already assumed to be met?
no, It was a mutlti tier bonus. The very lowest had a high chance, and the highest were understood to be very unlikely.
That said, the case didnt turn on the question if they were likely. It was based on: 1) incomplete disclosure that the compensation team may have conflicts of interests, which opens the door for arguments that the comp wasnt fair, and then 2) an argument that it wasnt a fair deal because 50B provided no extra motivation because Musk already had enough stock to motivate performance
One thing I find kind of hard to understand: How can someone who has so many billions already (as in, more than he can ever spend in ten lifetimes) care so much about getting so much more? He's already at the point that the concept of "money" is irrelevant to him. He can buy anything he wants anywhere at any moment without even thinking about the cost.
I don't really understand the anger at not getting another 50 billion to add on top of the pile that is already so astronomically big :) What does he want to buy, another 1000 private jets? :)
If I had this kind of money I would really not care anymore :P I do think it's unfair that the whole pay package was cancelled though. It should have just been negotiated to a more justifiable amount.
It's not about the money. It's about risk vs reward. Musk absolutely killed himself over getting Tesla where it is (it kind of shows in his mental state of late) having that all ripped away because a guy with 9 shares complained about his pay package and won on a minor technicality is vexing to say the least. The pay package required extreme levels of execution, and Tesla achieved extreme levels of execution.
I think you see this with lots of business people, their wealth is the result of their drive. They aren't wealthy because they want to be wealthy they're wealthy as a by-product of the other things they were pursuing. Musk didn't build SpaceX or Tesla to get rich, and what he's demanding isn't really money but control. It doesn't help that it's been about a decade since he heard anyone actually say no to him either until he tried to screw with the Delaware Chancery Court. So now he's tuck tail and running to somewhere he doesn't have to follow the rules.
Twitter has cost a fair chunk. Also a city on Mars could cost.
That said I think much of the annoyance is more about a deal being a deal. The agreed deal was roughly 10x the share price and then you get 10% of the gain, he did it and then some court comes and says ha ha no. Not being able to stick to deals in business makes it hard to do business.
If Musks campaign is successful and half of companies move their incorporating state elsewhere, Delaware stands to lose $3B/year. That's $3000 per resident. That sounds like a lot for them to have to find from under the couch cushions.
If [completely different thing happens] then [completely different consequences], yes.
I didn't bother with breakfast today because I was in a rush. If no-one ever ate breakfast again, the egg industry would be thrown into chaos. These facts are not meaningfully related.
Even more. A large portion of Delaware's revenue comes from unclaimed property that is never claimed. The state of incorporation is one of the key deciders on where that money sits until it is claimed.
If the cost to move is tiny, then the risk of anyone not buying the company is even more insignificant, since it can be moved before or after the purchase. Do you seriously think someone will pass on an interesting company they were going to invest 6+ figures in, just because of this detail that they can easily correct?
Already a lot of companies have been moving after this. ALL THE vcs feom thr All In Pod said they are moving all thier companies out of Delaware.
More will follow.
The reality is Delaware decided to give the CEO no pay, and in turn hurt the shareholders by paying what is likely thr largest ever award to a law firm.
And who pays for it? The shareholders when tesla has to pay them an enormous amount of money.
All over 1 person who had 11 shares, granted they were a puppet
> The reality is Delaware decided to give the CEO no pay, and in turn hurt the shareholders by paying what is likely thr largest ever award to a law firm.
> And who pays for it? The shareholders when tesla has to pay them an enormous amount of money.
For the time being it saved the company 50billion, which is almost 10% of the value of the company. I don't believe that the law firm is getting anywhere close to that so yea, the court saved money for the shareholders. How is that hurting the shareholders?
They said they're moving. That's different than "have moved". Talk is cheap and kneejerk reactions are simple. Let's see in a month if anyone still remembers about it. Especially after they run that past their lawyers/accountants...
This is an utterly insane take that frankly, couldn't be more inconsiderate of reality. Such a meaningless unimportant bit of news that no serious individual needs to pay any mind to
Generally speaking, you pay taxes where you do business. If you're doing business in New York state, you'll need pay taxes in NY. If you're doing business in California, you'll need pay taxes in CA. And so on.
I never understood the freedom of incorporation issue here in the first place. Perhaps its some concept of "state independence" joined to "competition is good" but at one remove, differential standards in registration & incorporation feels like a bad thing, within an otherwise jurisdictionally consistent model.
TL;DR this shouldn't be effective, if the regulatory landscape is flat. If it's not flat, then states differences are very possibly a bug, not a feature.
It’s not flat, never has been, and you can measure by how many different legal jurisdictions (which cannot be measured by national borders alone) there are in the world how likely it is it ever will be.
Let me put it this way:
I don’t want Mississippi voters determining the laws of my State and Mississippi doesn’t want California voters determining the laws of Mississippi. When we do need to reach some kind of compromise, that’s what Congress is for, and you can measure what there’s room to compromise on by how much Congress gets done in a given session. That’s why we’re different. That’s sometimes inconvenient, but for most people most of the time those inconveniences never come up for them personally.
Contextually jurisdictional flatness meant USA. It's surprising to people in other federated states that these levels of business incorporating processes vary inside the sane polity.
Reductionist "but the world is not flat" ignores how strange America is, French law Louisiana and all. Admittedly scots law is very different. I realise some other places have this but you don't hear of people moving a plc from London to Glasgow because of it.
Yeah, we’re a bunch of weirdos, but weird is not bad. There are good historical reasons for how we are, and not only has there not been a reason to proactively modify the status quo, even if we did, I suspect we would land on a similar arrangement as the present one, or choose to make no changes at all (which would then be called Congress being gridlocked, ineffective and inept by the hypothetical champions of any such reform).
I don't think you can judge by number of state jurisdictions at least, with regard to dealings if not incorporation itself, as almost all adopted the uniform commercial code.
If it comes up in court you never want to rely specifically on knowledge of the UCC at trial without studying up on the particulars of how it has been modified or amended in a particular jurisdiction. That’s a good way to lose a case or at least make your life more difficult than it needs to be.
So despite the name, it’s not exactly uniform even where adopted. But yes, the actual processes tend to be very similar; you still need to do your due diligence on a per State basis where you intend to operate. Besides that, there may be other relevant laws governing your business that are outside the scope of the UCC.
Not sure what you mean by "otherwise jurisdictional consistent" but there needs to be some body of law which is used to judge disputes relating to the governance of the corporation. In the US this is the state law of the state in which the corporation was incorporated. I'm not sure why this would ever be a bad thing, could you give an example of the kind of failure you are alluding to?
You're saying that people never move incorporation or pick incorporation states for tax minimisation, or to avoid penalties or state labour laws, or debt or lawsuit related reasons?
