The judge who wrote the Moelis decision, Travis Laster, shared his own concern on LinkedIn, calling the proposed changes “major surgery.”
Rick Horvath, a California-based partner at Dechert, said: “Both public and private companies have expressed concerns over perceived uncertainty from the Delaware courts. There is a growing perception that decisions are results-based, and a minor misstep could result in significant legal exposure. The discussion around alternative domiciles is at its highest point in a generation.”
The same judge who struck down Musk’s pay package has also inserted herself into the brewing debate about whether the Delaware court has become excessively hostile to companies and boards of directors.
In May, McCormick wrote a letter to the state’s bar association that recommends changes to the Delaware corporate law, arguing that historically changes to the law resulting from court decisions did not happen hastily.
“None of the hallmarks of Delaware’s tradition are present this year. The proposal was not the product of a cautious and deliberative process . . . quite the opposite.”
The Musk and Moelis decisions have demonstrated how strict Delaware corporate law can be for companies that have large shareholders who want to exercise power, a common occurrence in private equity and venture capital-backed enterprises. Advisers told the Financial Times they are quietly counseling those companies that have controlling shareholders to consider alternatives to Delaware.
Ann Lipton, a law professor at Tulane University, said: “These companies went public with these existing stockholder agreements [giving power to large shareholders] and for the first time were tested legally, the court said that they are not OK. It has scared a lot of companies.”
The Delaware court has received roughly 1,500 letters and emails in total from ordinary Tesla shareholders asking McCormick to respect their wishes if they again vote in favor of Musk’s pay package.
One self-described “small investor in Tesla,” Steve Lindenmuth of Union City, California, wrote: “I only invested in Tesla for one reason. That reason was because Elon Musk was then CEO. For years I told people I would invest in Musk if he had stock in himself.
“It is undeniable he is the greatest CEO of our lifetime.”
Additional reporting from Tabby Kinder.
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