Opinion: Tesla investors should think twice about Elon Musk’s plan to reincorporate in Texas

Matt Levine wrote about this yesterday:

1. Delaware has a specialized court that hears corporate law disputes, the Court of Chancery. The judges on that court (the chancellor and vice-chancellors) are experts, they hear a lot of corporate law disputes, they understand the issues, and they mostly make sensible decisions. They also understand that these cases are time-sensitive, so they move fast. (Though in Musk’s case the decision did take rather a long time.) They also don’t have juries. So if there’s some dispute about what a Delaware public company can do, the company knows it can go to court and get a quick answer from a smart, knowledgeable judge.

2. That court has been around for a long time, so there are a lot of precedents, so Delaware law is predictable. I can tell you the rules that apply to Elon Musk’s pay, and for each of the debatable terms — “controlling shareholder,” “entirely fair,” etc. — there are cases that explain how to interpret them. Predictability is very important to public companies. They don’t want to go to court to get answers about what they can do: They want to know what they can do, in advance, without getting sued. If you’re a Delaware company and you have some gnarly issue, you can call pretty much any big-time corporate lawyer and say “am I allowed to do this gnarly thing,” and she will go consult Delaware precedents and come back to you with a pretty good answer.[1] Note that in Delaware, as elsewhere, this is largely a matter of judge-made law, of precedential rulings interpreting the rules; it’s not like the Delaware legislature (or any other state’s legislature) sat down and wrote detailed rules about how much a company can pay its CEO. But compared to other states, Delaware’s judge-made corporate law is more detailed and predictable.

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On the other hand, if you are another US state (or a foreign jurisdiction), and you want to induce companies to incorporate in your state rather than in Delaware, the main thing that you can offer is “we will be even more management-friendly than Delaware.”[2] You can’t offer a deep body of precedent produced by expert judges, or not yet anyway. But you can say “hey, our rules aren’t really written yet, and you can’t entirely predict what they will be, but you can reasonably guess that they will give corporate managers more freedom and less shareholder oversight than Delaware’s rules do.”

Is that an appealing pitch? Maybe? Not to everyone. But you know who really values the freedom to do what he wants, and really does not care about predictability?

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Still, I mean, the bet here for Elon Musk is reasonable: If he moves Tesla to Texas, and then demands that Tesla’s board pay him $100 billion to keep a reasonable fraction of his time and attention on Tesla, and Tesla’s extremely accommodating board says “sure whatever you want,” and a majority of shareholders approve the pay package, and one disgruntled shareholder sues, and the case goes to Texas business court, and the complaining shareholder comes into court citing conflicts of interest and the board’s lack of independence and the Delaware cases on “entire fairness,” and Elon Musk comes into court saying “well that may all be true but what you are missing is that I am Elon Musk,” and Texas Governor Greg Abbott is in the first row of spectators with a big sign saying “TX <3 U ELON,” is the Texas business court, in its first real high-profile case, going to say “actually it’s illegal to pay Elon Musk that much”? It absolutely is not. That much is pretty predictable.

Yeah I think the short of this is that having a court that isn’t used to dealing with mega corps is a feature not a bug.

Musk wants to be able to bully his way through court proceedings and doesn’t like that shit like that doesn’t fly in Delaware because they’re used to dealing with that.

Fuck it, bring a bunch of liberal hippies to Texas. Lord knows I don't want to give Elon Musk anything more that he wants, but it might just help turn the state blue faster, which would certainly help things become more green.