Tesla and Musk Submit Bill to Amend Delaware Corporate Law
Criticism Arises Over Undermining Minority Shareholder Protections
U.S. electric vehicle company Tesla has submitted a bill to amend the law to restore CEO Elon Musk's stock option compensation plan, which was previously halted by a court ruling, CNBC reported on the 18th (local time). Tesla argues that the legal amendment is necessary to maintain Delaware's status as the optimal city for corporate incorporation, while academia points out that if the law is amended, the corporate law principle of protecting minority shareholders will be undermined.
According to CNBC, the law firm representing Tesla and Musk submitted a bill to the Delaware state legislature on the same day to amend Delaware's General Corporation Law. For this bill to be enacted, it must pass the state legislature and receive the governor's approval.
Previously, Delaware Court Judge Catherine McCormick ruled in December last year that Tesla's stock option compensation plan, valued at $101.5 billion (approximately 146 trillion won) based on the stock price that day, was unlawful. Judge McCormick determined that since Tesla's board of directors was effectively under Musk's control, the approval of the compensation package could not be free from Musk's influence.
The bill submitted by Tesla and Musk this time includes provisions that would prevent Musk from being considered a 'controller' of Tesla and would allow the board of directors to discuss and transact executive compensation plans more freely than before, thereby opening the way to restore Tesla CEO's compensation plan, CNBC reported.
The head of the law firm that drafted the bill stated, "To restore the core principles that have guaranteed Delaware for over a century and to keep Delaware as the best place for corporate incorporation, changes in the law are necessary."
However, Brian Quinn, a law professor at Boston College, criticized, "The true role of corporate law is to protect minority investors," adding, "Through this law, the legislature is essentially saying 'protect them less.'"
In 2018, Tesla's board of directors decided on a phased compensation package based on CEO Musk's management performance. However, Tesla minority shareholder Richard Tonetta filed a lawsuit claiming that the compensation amount was excessively large and that the board was not sufficiently independent from Musk to protect shareholders' interests, leading to a trial in Delaware state court.
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