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    Delaware Law Has Entered the Culture War

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    Elon Musk has helped bring an esoteric debate around the Delaware Chancery Court to a national stage. Now Dropbox and Meta are contemplating moving their incorporation away from the state.The clubby insular world of corporate law has entered the culture war.First, Elon Musk started railing against Delaware, which for more than a century has been known as the home of corporate law, after the Delaware Chancery Court chancellor, Kathaleen McCormick, rejected his lofty pay package last year.Eventually he switched where Tesla is incorporated to Texas.Now, Dropbox has announced shareholder approval to move where it is incorporated to outside Delaware, and Meta is considering following suit. Others are also evaluating whether to make the move, DealBook hears.Musk’s ire against the state where nearly 70 percent of Fortune 500 companies are incorporated brought what would usually be an esoteric issue to the national stage and framed it, alongside hot button issues like diversity, equity and inclusion programs, as one further example of overreach.“You can blame McCormick or you can blame Musk — or you can say it’s a combination of the two of them — but it has turned it into a highly ideologically charged political issue, which it never, ever was before,” said Robert Anderson, a professor at the University of Arkansas School of Law.The drama over court rulings could have huge consequences for the economy and politics of Delaware, which counts on corporate franchise revenue for about 30 percent of its budget — and more, if you count secondary impacts like tax payments generated by the legal industry.At issue is a longstanding question in corporate America: How much say should minority shareholders have, especially in a controlled company? One side argues that founders like Mark Zuckerberg are given controlling shares, which give them outsize influence in a company, with the belief that they know what is best for a company. And minority shareholders buy into a company knowing their limitations. The other side argues these controlling shareholders are not perfect.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Tesla Shareholders Will Vote on Elon Musk’s Big Payday. What Happens Then?

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      The company has lobbied to reinstate the package awarded to Musk six years ago — now worth about $56 billion — after a Delaware judge voided it.After months of fighting over a pay package promised to Elon Musk six years ago — one that included stock grants now worth about $56 billion — matters are finally coming to a head.At Tesla’s annual meeting on Thursday, shareholders are set to vote on whether to reapprove the compensation deal after a Delaware judge voided it in January. The outcome could shift Musk’s relationship with the company, and Tesla officials aren’t taking any chances.“If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal,” Robyn Denholm, the company’s chair, wrote to investors on Wednesday.Regardless of the vote’s outcome, further lawsuits and other battles may follow, some of which could test the corporate legal system. Here’s our guide to how different situations could play out.Tesla could use shareholder approval to argue its case for Musk’s pay in court. If it wins the vote on Musk’s compensation, the company is likely to go to Chancellor Kathaleen McCormick, the judge in Delaware’s Court of Chancery who rejected the compensation scheme, and argue that shareholders — armed with the information that she said they hadn’t had when they approved the package — have reratified the proposal. That, the company is expected to say, makes the matter moot.If McCormick declares the plan acceptable, the plaintiffs who initially sued over it are likely to appeal to Delaware’s Supreme Court. Among their potential arguments: The new vote doesn’t resolve a matter that was already decided by a judge, and shareholders’ votes may have been influenced by implied threats to Tesla’s future if the vote didn’t go Musk’s way.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      in Elections

      What Elon Musk Could Lose After His Tesla Pay Deal Is Blocked

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      A Delaware court ruling on his $50 billion compensation plan at Tesla raises questions about corporate governance and more.Elon Musk may be forced to give up a grant of Tesla shares worth over $50 billion.Amir Hamja/The New York TimesThe big stakes of Musk’s outsize pay dealAn unusual pay package that Tesla devised in 2018 helped make Elon Musk the world’s wealthiest individual.But a Delaware judge’s ruling that the arrangement was unfair to other Tesla shareholders raises questions about much more than Musk’s net worth, including control of his companies and his ability to fund them — and how corporate leaders are paid.The backstory: In 2018, Tesla set out 12 milestones tied to market capitalization, revenue and profit targets that Musk needed to reach to qualify for a stock package that is now worth over $50 billion. Experts thought it would be impossible to hit. Yet Musk — who told Andrew at the time that Tesla would hit a $1 trillion market cap within a decade — pulled it off. (He hasn’t taken possession of the shares yet.)Shareholders sued, however, arguing that the plan was devised unfairly, with Musk essentially creating his own pay package with the help of allies on the Tesla board.Those shares are now at risk of disappearing. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” Chancellor Kathaleen McCormick of Delaware’s Court of Chancery (who has been blunt in hearings with Musk before) wrote in her decision, ordering that the contract be voided.There’s a lot at stake:Questions about the Tesla board’s independence are being asked as the car maker’s directors weigh a demand by Musk for more control of the company, lest he start moving highly anticipated A.I. projects to other parts of his business empire.Musk has taken out stock margin loans to finance parts of his business empire. He may find it harder to come up with cash if X needs more money, for example.And corporate governance experts say the ruling is a warning to other business leaders. “It establishes that there is such a thing as excessive compensation,” Sarah Anderson of the Institute for Policy Studies, a progressive research group, told The Times.Some legal experts think any Musk appeal faces tough odds. He will probably appeal to the Delaware Supreme Court, they say. But Eric Talley, a professor at Columbia Law School, told DealBook that chancellors like McCormick historically have wide latitude to rule on such punishments.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More