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BlackRock and Vanguard executives presumably do not participate in Twitter polls.
On Wednesday, Tesla shared its proxy statement ahead of its June annual shareholder meeting. The company is asking shareholders again to vote in favour of Elon Musk’s 2018 pay package — the same one nullified earlier this year by the Delaware Court of Chancery. The share award is now valued at $45bn rather than $56bn due to a sharp drop in Tesla’s share price.
More interestingly, Tesla is asking shareholders to let the EV maker relocate its corporate domicile from Delaware to Texas. The materials noted that 87 per cent of respondents to Musk’s Twitter plebiscite in January, just after the pay package ruling, were in favour of a move. When actual large institutions formally vote, including the likes of BlackRock and Vanguard, do not expect similar support.
Tesla made seemingly contradictory arguments in its filing. Texas corporate law, it says, leans on Delaware doctrines and will not impede shareholder rights. At the same time it wrote: “Delaware law can be indeterminate because of its use of broad, flexible standards that are applied to individual cases in a highly fact-specific way.”
It went on to say that it made sense for Tesla to incorporate in the Lone Star State because “Tesla is all-in on Texas” because Tesla is “intertwined with our Texas corporate headquarters.”
Remarkably, the company said the redomicile vote had nothing to with the adverse ruling in the pay case, notwithstanding Musk’s ongoing social media criticism of Delaware.
Texas is only to launch its new corporate law court this year. Tesla insisted its advisers’ analysis suggested that there would be no discount applied to a company in an untested legal environment. Institutional investors, however, have long favoured Delaware for its sophistication and predictability.
TripAdvisor, the internet company whose backers include media mogul Greg Maffei, recently held a vote to move to Nevada, which unaffiliated shareholders overwhelmingly rejected. The backdrop to all these cases is whether a powerful controlling shareholder simply wants to flee to a less strict jurisdiction. Delaware had rejected the Musk pay package citing, among other things, directors who were too chummy with Musk.
For the move to happen, a majority of Tesla shareholders aside from Musk, must sign off. Tesla has a relatively large share of retail shareholders. BlackRock and Vanguard only own 12 per cent together of all outstanding shares.
Musk likes to do what he wants. This time he has asked for permission. If Tesla ends up in Texas, at least no one can feign surprise at whatever he happens to do after.
