Richards, Layton & Finger, a law firm representing Elon Musk and Tesla, has drafted a proposed bill that could significantly alter Delaware corporate law. The legislation aims to overturn a previous court ruling that rescinded Musk's lucrative 2018 Tesla pay package. The Delaware Court of Chancery ordered the pay package, worth tens of billions in options, to be rescinded last year. This proposed legislation could redefine Musk’s role as a "controller" of Tesla, potentially reinstating the pay package.
The bill was introduced to the Delaware General Assembly on Monday and seeks to amend the Delaware General Corporation Law. If passed, the legislation could limit minority stakeholders' access to corporate information. Currently, stakeholders can obtain informal communications such as emails and messages between board members and executives through "books and records" inspection requests. However, the proposed changes would restrict access to only formal documents like certificates of incorporation or minutes from stockholder meetings.
According to Brian JM Quinn, a law professor at Boston College, these amendments could change Musk's status as a "controller" of Tesla. The proposed changes would also subject transactions involving self-dealing with controllers or directors to less scrutiny than they currently receive.
"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,"
- Renee Zaytsev, partner at Boies Schiller and co-chair of the firm's securities and shareholder dispute practice.
Elon Musk has publicly criticized Chancellor Kathaleen McCormick following the Court of Chancery's decision last year. He has expressed his discontent through disparaging posts on X, his social network, and has even moved the incorporation site for his businesses out of Delaware. This proposed legislation might be seen as a response to such dissatisfaction and could be part of broader efforts to keep Delaware as a leading jurisdiction for corporate incorporation.
"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.
The bill will require approval from both chambers of the Delaware General Assembly and the signature of Governor Matt Meyer before it can become law. RLF confirmed the existence of the proposal to CNBC.
"Delaware has taken some heat for supposedly being too hard on controller transactions,"
- Renee Zaytsev, partner at Boies Schiller and co-chair of the firm's securities and shareholder dispute practice.