TheCorporateCounsel.net

“If I go, there will be trouble; if I stay, it will be double.” I’m not sure if the lyrics to the Clash song reflect the risk/reward analysis of redomestication of a Delaware corporation, but the Tesla board seems to have concluded that the trouble of changing Tesla’s state of incorporation to Texas is less than the trouble of having its affairs continue to be governed by Delaware law.

On the Proxy Season Blog, I recently shared that Tesla has filed its preliminary proxy statement, and it includes a proposal requesting that shareholders ratify Musk’s 2018 pay package that the Delaware Chancery Court ordered rescinded. The blog shares some interesting tidbits from the disclosure, including that even Tesla isn’t sure how this ratification will be treated under Delaware law.

Filed less than three months after Musk previewed moving Tesla’s state of incorporation on X, the proxy also includes a proposal for redomestication. It notes that Tesla’s “outside directors as well as management had previously explored the possibility of a redomestication (though without coming to a decision one way or the other),” but begins the detailed description of the work done by the board, the special committee and its advisors with the February 4 board meeting after Musk’s social media post. Here are some highlights of the process description:

– The special committee was comprised of one member who was not on the board at the time of the 2018 grant. A second member had stepped down after the committee’s authority was expanded to include consideration of whether Musk’s 2018 award should be ratified.

– It engaged four special advisors — outside counsel, Delaware counsel, a corporate law and governance expert and a financial advisor.

– From its formation on February 10 to its final approval meeting on April 16, the special committee held 16 meetings that took more than 26 total hours and engaged in work outside meetings for more than 200 hours.

– That work included interviews of the seven other directors and five members of management, a visit to Tesla’s headquarters by counsel, a conversation with the external auditor and reviews of reports from a governance expert & financial advisor, numerous legal decisions, letters from stockholders, and academic articles.

– The proxy justifies the tight turnaround by saying that the committee assessed the timeline with its counsel, determined that the proposal should be considered at Tesla’s annual meeting for greater shareholder participation, and felt it took the time it needed since the company agreed to the special committee’s request to move the date of the annual meeting by a month after “negotiation over various potential dates.”

– Meredith Ervine