In asking shareholders to approve of the same 2018 pay package that was nullified by the Delaware Court of Chancery in January, Tesla is relying on a legal principle known as “ratification,” in which the validity of a corporate action can be cemented by a shareholder vote.
This instance, however, is the first time a company has tried to leverage that principle after its board was found to have breached its fiduciary duty to approve the deal in the first place.
Even Tesla admits it does not know what happens next. “The [Tesla board] special committee and its advisers noted that they could not predict with certainty how a stockholder vote to ratify the 2018 CEO performance award would be treated under Delaware law in these novel circumstances,” it said in a proxy statement sent to shareholders.
Each side has offered divergent views on what Thursday’s vote will mean in a more practical sense. Should the referendum pass, dissident shareholders could sue again or amend their original case to attack the new pay vote. They could claim paying Musk for past performance is itself a “waste” of corporate resources and yet another breach of fiduciary duty.
*Thursday’s vote will leave unresolved the question of how much the lawyers who sued and won over the 2018 deal will take home. In March they asked the court to grant them 29 million Tesla shares—now worth more than $5 billion—as a payment for their work.
Hm Likely more lawsuits even if shareholders approve the original pay package. This could draw out for years. Lawyers will be making out.
Perhaps the US legal system will end up crushing Tesla rather than any EV competitors?