Tesla shareholders side with Elon Musk. Here’s why it won’t erase legal woes

Elon Musk lassoed victory in Texas on Thursday, June 13. Tesla shareholders overwhelmingly approved his pay package for the second time and voted to approve the company relocating its incorporation from Delaware to Texas.

Tesla officially announced the results at Thursday’s shareholder meeting but Musk jumped the gun nearly a full day early, posting preliminary numbers on his other company’s site, X.

Because of the posts and Tesla’s subsequent stock surge, Tesla issued a regulatory filing with the Securities and Exchange Commission. The filing simply includes Musk’s X posts.

However, experts said the shareholder votes only make the legal issues around Tesla more complicated. It does not mean Musk can walk away with his contested pay package, which shareholders have twice approved.

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How did Tesla and Musk get to this point?

It all started when a Tesla shareholder sued over Musk’s pay package, which was worth around $56 billion at the time a Delaware judge struck it down. Tesla is, at least for now, incorporated in Delaware, as are the vast majority of Fortune 500 companies. 

“The judge’s concern was that the disclosure to the shareholders about this package was inadequate; that there are serious flaws, she felt, in the process; the independence of the directors; how the thing came together,” Charles Elson, a renowned expert in corporate governance in Delaware, said. “And she felt that, obviously, had disclosure been more accurate, that the shareholders may not have approved it.”

Straight Arrow News spoke with Elson about Musk’s compensation issues after Musk blamed the state of Delaware for the blow to his pocketbook and warned other companies to stay far away. 

“Simply because a CEO is upset at a ruling against him in a neutral court, Delaware, is not a reason to reincorporate, period,” Elson said.

But that is what Musk set out to do, squaring in on Texas, where Tesla is headquartered. The state is also forming a business court system of its own to challenge Delaware’s reign as America’s corporate home.

“I think it would be rather insulting to Texas judges to suggest that they would have done something differently had they found the same facts,” Elson said. “You can’t go forum shopping, if you will, for a friendly judge, or if you do, it’s not the right thing to do.”

How does latest shareholder vote affect existing legal challenges?

Even if Tesla successfully reincorporates in Texas, that does not mean his current legal woes move with it. Tesla already vowed to keep the Delaware issue in Delaware, where Musk is appealing the original compensation decision. 

“Originally, the only question on appeal was whether [the judge’s] original findings regarding 2018 were correct,” Tulane law professor Ann Lipton told SAN in an email. “Now, we have this new vote, with uncertain legal effect. [Judge] McCormick will decide it in the first instance: she’ll either say it cures the problem and the package is restored, or that it doesn’t. Whichever she decides, the loser will appeal.”

That makes Thursday’s victories more like moral victories for Musk. There is no guarantee the courts will approve his pay.

That pay package is worth considerably less than when the Delaware judge struck it down, too. Tesla’s share price is down more than 26% in 2024, bringing Musk’s pay package value down about $10 billion.