Elon Musk and the Absolutist Revival
Rulers have always found it hard to accept limits on their power. When the French parliament disputed Louis XIV’s edicts in 1655, the king of France and Navarre is said to have responded: “L’état, c’est moi” (“I am the state”). The ensuing age of absolutism in France ended only with the French Revolution in 1789. Like Louis XIV, Elon Musk rejects legal constraints on his power. In defiance of a recent Delaware Chancery Court ruling that voided his $56 billion compensation agreement with Tesla, Musk wants to reincorporate the company in Texas, where he is hoping to find more accommodating courts.
It is not the first time that Musk has sought to defy the Delaware court, which is the main venue for resolving most corporate law disputes in the United States (because most companies incorporate in Delaware). His hostility to the law and to binding legal agreements was on full display two years ago, when he tried to wriggle out of the deal to buy Twitter. Under court pressure, he eventually completed the transaction.
In the Tesla case, a shareholder asked the court to review a compensation package that has made Musk one of the richest men on the planet by granting him equity stakes in the company when it meets ambitious performance targets. For each additional $50 billion (up to a total of $650 billion) increase in market capitalization, plus targets for revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA), Musk would receive the option to purchase an additional 1% of the company’s outstanding shares (up to 20 million shares) at a pre-fixed strike price.
Delaware courts are typically reluctant to review board actions, and they never simply rule on the amount of pay granted to directors or officers. The only limit is “corporate waste,” which, as a former chancellor has quipped, is as rare as the Loch Ness monster. Delaware courts will scrutinize a company’s decision-making process if a plaintiff has made the case that the process might have been influenced by conflicts of interest. Directors are supposed to serve as