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OPINION

Updated February 3rd, 2024 at 12:48 IST

Elon Musk charts largely painless Delaware exodus

Musk aims to reincorporate Tesla in Texas after a court unwound his $56 billion pay package.

Reuters BreakingviewsJonathan Guilford
ELON MUSK, WORLD'S RICHEST MAN
With a current networth of around $230 billion, Elon Musk could become the first trillionaire in the world. | Image:AP
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Disorder in the court. It’s hard for a company to find its way out of Delaware, but Elon Musk may be mapping a safe route. The Tesla boss is angling to reincorporate the electric-car maker in Texas after the First State’s corporate judiciary unwound his $56 billion pay package. Investing devotees could help ease the exodus, and might even give other chief executives ideas about revaluing corporate governance.

Tesla, like 68% of its Fortune 500 kin, is domiciled in Delaware, long the preferred choice for big business. A well-established court system, presided over by specialized jurists leaning on a century of precedent, provides shareholders with predictability and security. Even better, the state’s deference to management and directors generally makes life easier for boards that simply follow some basic protocols. Judge Kathaleen McCormick on Tuesday ruled that Tesla fell short of even that standard and ordered Musk’s 2018 compensation deal be rescinded.

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Decamping for Texas would invite yet another lawsuit, especially since it can be cast as an effort to reinstate the lucrative payday. And the very thing that makes Tesla worth $575 billion – Musk’s cavalier approach to leadership – probably makes it impossible to meet the same procedural test McCormick applied.

Nevertheless, investors almost certainly would be willing to go along for the southwesterly ride. After all, they approved Musk’s reward, at 250 times what the typical CEO makes. In most cases, a company protected by foreseeable legal outcomes is, in theory, worth more than one without them. For Tesla, the value of enforcing certain principles and laws is eclipsed by the amount imputed by its megalomaniacal captain. The company’s billions of dollars in cash flow means it doesn’t need money from backers who prefer Delaware’s safeguards. Even if the odds of Musk quitting over his paycheck are low, voting to support his relocation makes rational sense.

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The ramifications also could extend beyond Tesla. Texas has set up its own business courts to rival Delaware’s, but they have yet to open and face potential constitutional challenges. And although Musk probably reckons his clout can overawe a new regime, the state may not be as amenable to his whims as he expects.

Other domineering CEOs might still surmise that once they’ve achieved enough success, arbitraging regulatory regimes is relatively painless. Indeed, media mogul John Malone’s empire is attempting a similar maneuver. Its online travel agency TripAdvisor is being sued over a move to Nevada. Founders of hot startups, including Meta Platforms boss Mark Zuckerberg, have already used super-voting shares to prevent the masses from having a say. Musk, as he so often does, might push things even further.

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Published February 3rd, 2024 at 12:48 IST

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