Tesla's Law Office drafted a Delaware Bill that could Preserve Musk's Pay Deal

According to a person directly involved with the bill's drafting who requested anonymity in order to speak about the topic, a law firm representing Tesla and Elon Musk has authored proposed legislation that would change Delaware company law. The proposed legislation, developed by Richards, Layton & Finger, or RLF, would change Delaware General Corporation Law and, if passed, may open the way for the reinstatement of Musk's 2018 CEO pay package at Tesla, which included tens of billions of dollars in options.

"Statutory changes are necessary to restore the core principles that have been the hallmark of Delaware for over a century and ensure that Delaware remains the preeminent jurisdiction for incorporation," Lisa Schmidt, president of RLF, said in a statement. A spokeswoman for the law firm stated that RLF's involvement in the legislation draft was not on behalf of any specific client. The bill was submitted in the Delaware General Assembly on Monday and would need to be approved by both chambers as well as Gov. Matt Meyer before becoming law.

According to Brian JM Quinn, a corporate law professor at Boston College, the measure did not follow the usual procedures for legislation attempting to amend Delaware corporate law. For decades, such legislation has been developed, debated, and vetted by the Delaware State Bar Association's Corporation Law Council before being sent to the legislature, he added. Quinn stated that the council, which comprises attorneys representing a diverse variety of clients and interests, was not contacted on this bill prior to its filing.

Tesla's 2018 pay package for Musk was the highest CEO compensation plan in public corporate history, with a maximum value of $55.8 billion, but the Delaware Court of Chancery ordered it to be canceled early in 2024. In her decision, Chancellor Kathaleen McCormick stated that the pay plan was improperly determined by Tesla's board, which was controlled by Musk, and that it was approved by shareholders who were deceived by Tesla's proxy documents before voting on it. According to Quinn, the proposed legislation may change Musk's status as a "controller" of Tesla. This is because Musk does not now possess one-third of Tesla's voting securities, as required by the proposed legislation. These transactions include going-private deals, mergers and acquisitions, and board and CEO compensation decisions. "The real role of corporate law is to protect minority investors," says Quinn. "With this bill, the legislature says, 'Now, you know what? "Protect them less. According to Quinn, the proposed legislation would also limit the types of papers that minority stakeholders can receive through "books and records" inspection requests. Those stakeholders would have access to formal documents such as a certificate of incorporation or minutes of stockholder meetings, but not to informal communications such as emails or other messages between board members and CEOs, according to Quinn.

Following the Court of Chancery's ruling last year, Musk launched a campaign to convince firms not to incorporate in Delaware and relocated the incorporation sites for his companies outside of the state. He has often and disparagingly posted about McCormick on his social network, X. Other corporate leaders have criticized the Delaware judiciary. Earlier this month, Pershing Square CEO Bill Ackman and Coinbase CEO Brian Armstrong expressed concerns about Delaware's "activist judges" on X.

"Delaware has received some criticism for allegedly being too strict on controller transactions," said Renee Zaytsev, a partner at Boies Schiller and co-chair of the firm's securities and shareholder dispute practice. "These amendments seem to be a course correction that would make it significantly easier for boards and controllers to avoid judicial scrutiny of their transactions," according to her.