Bite-Sized Business Law Vox Shareholders and Still No Payday for Musk: Tornetta Round Two
It started with a simple question: Was the richest person in the world overpaid? While the Delaware Court of Chancery twice concluded yes — Elon Musk’s Tesla compensation package was indeed unreasonably large and flawed in its process — the debate continues as to whether the decision was faithful to Delaware’s governance processes or an affront to shareholder democracy. In today’s conversation, Amy Martella is joined by Fordham Law colleagues Sean Griffith and Richard Squire, and we begin by breaking down Musk’s Tesla compensation package and the two rulings issued by the Delaware Court of Chancery. We examine both rulings in more detail before ironing out the finer details of the latest Tesla shareholder ratification vote. Then, we assess the source of authority in corporations and how this power is structured, the judicial rules that corporations have to adhere to, the relationship between agency law and trust law, and the ins and outs of derivative suits and the shareholder power that comes with it. To end, we envision what may happen next as Musk appeals to the Delaware Supreme Court, how his actions and relation to President Trump may affect future verdicts, and inconsistencies in Delaware corporate law with suggestions for improving it.
Key Points From This Episode:
- Revisiting Musk’s 2018 compensation package and the Delaware Court of Chancery’s initial ruling.
- What happened after the first ruling, and how we ended up with a second opinion affirming the initial ruling.
- Taking a closer look at the second ruling post-Tesla shareholder ratification.
- The fatal flaws of the ratification vote as seen by Chancellor Kathaleen McCormick.
- Unpacking the source and ladder of authority in corporations.
- How a corporate structure relates to the judiciary.
- Agency law, trust law, and the conclusions we can derive from their relationship.
- Derivative suits, and whether the power that shareholders currently have should be curtailed.
- What we think will happen next, and how Musk’s behavior may influence his way forward.
- The ramifications of his role as President Trump’s advisor.
- Reexamining Delaware corporate law and possible ways to improve it.
Links Mentioned in Today’s Episode:
Tornetta v. Musk second opinion
Tornetta v. Musk first opinion
‘Saints and Sinners: How Does Delaware Corporate Law Work?’
‘Corwin, et al. v. KKR Financial Holdings LLC., et al.’
Fordham University School of Law Corporate Law Center