Watch, Listen, Learn: Tesla’s Precedent-Setting ASM

Shareholders at Tesla’s annual meeting this week will vote anew on whether to approve Elon Musk’s 2018 performance-based compensation package. The package was revoked in April after a bench trial in Delaware Chancery Court. In the aftermath of Chancellor Kathaleen St. J. McCormick’s decision, Musk vowed to redomicile Tesla to Texas, the home of other Musk holdings including The Boring Company, Neuralink, and SpaceX.

More than 60 percent of the public companies listed in the U.S. call Delaware home in part because of the 200-plus years record of Chancery Court jurisprudence, long considered the nation’s “business court.” Both votes are nonbinding. The Financial Times reported that the new vote coupled with the court’s decision treads where no corporate law has gone before.

Lawrence Hamermesh, a law professor at Widener University, told the FT: “In theory, the chancellor could say that with the stockholders having approved [the contested 2018 comp package] on a fully informed basis that is an effective ratification, and the product of appropriate stockholder action, and in a way my previous ruling is moot.”

This precedent-setting legal territory bears watching by corporate governance advisors and directors of public and private companies.