A law firm that represents Tesla and Elon Musk has written proposed legislation that would alter Delaware corporate law, according to a person directly familiar with the drafting of the bill.
The proposed legislation, drafted by Richards, Layton & Finger, or RLF, would amend Delaware General Corporation Law, and if adopted, could pave the way for the reinstatement of Musk’s 2018 CEO pay package at Tesla, worth tens of billions of dollars in options.
RLF confirmed their involvement to CNBC.
“Statutory changes are necessary to restore the core principles that have been the hallmark of Delaware for over a century and ensure that Delaware remains the preeminent jurisdiction for incorporation,” Lisa Schmidt, president of RLF, said in a statement.
The bill was introduced in the Delaware General Assembly on Monday and would require approval by the state’s two chambers as well as Gov. Matt Meyer before it could become law.
The pay package Tesla granted to Musk in 2018 was the largest CEO compensation plan in public corporate history, but the Delaware Court of Chancery in early 2024 ordered it to be rescinded.
In her ruling, Chancellor Kathaleen McCormick wrote that the pay plan was inappropriately set by Tesla’s board, which was controlled by Musk, and that it was approved by shareholders who were misled by Tesla’s proxy materials before they were asked to vote on it.
Under the proposed legislation, Musk might no longer be considered a “controller” of Tesla, said Brian JM Quinn, a Boston College Law professor. Transactions that involve self-dealing with controllers or directors would be subject to less review than they are now, Quinn said. Those transactions range from going-private deals, to mergers and acquisitions, to board and executive compensation decisions.
“The real role of corporate law is to protect minority investors,” Quinn said. “With this bill, the legislature is saying, ‘Now, you know what? Protect them less.’”
The proposed legislation would also limit the kinds of documents that minority stakeholders are able to obtain through “books and records” inspection requests, Quinn said. Those stakeholders would be limited to formal items such as a certificate of incorporation or minutes of stockholder meetings but they’d lose access to informal communications such as emails or other messages between board members and executives, Quinn said.
After the Court of Chancery’s ruling last year, Musk started a campaign to persuade companies not to incorporate in Delaware and moved the site of incorporation for his businesses out of the state. He has aimed his ire at McCormick with repeated and disparaging posts about her on X, his social network.
Other prominent executives, including Coinbase CEO Brian Armstrong and Bill Ackman of Pershing Square, have also criticized the Delaware judiciary.
“Delaware has taken some heat for supposedly being too hard on controller transactions,” said Renee Zaytsev, partner at Boies Schiller and co-chair of the firm’s securities and shareholder dispute practice.
“These amendments seem to be a course correction that would make it significantly easier for boards and controllers to avoid judicial scrutiny of their transactions,” she said.
Tesla and Musk did not respond to requests for comment.