Tesla moves to stymie shareholder lawsuits after Musk pay saga

[NEW YORK] Tesla took a step to prevent future shareholder lawsuits like the one that blocked a record-setting pay package for chief executive Elon Musk.

The automaker late on Friday (May 16) disclosed changes to its corporate bylaws that will require investors to own at least 3 per cent of the company’s shares in order to “institute or maintain a derivative proceeding”. The move was taken on Thursday, according to a regulatory filing.

The change comes days after Texas governor Greg Abbott signed legislation enacting a series of changes to the state’s corporate law, including allowing companies to adopt ownership thresholds that must be met for shareholder derivative claims. Abbott and other Republican leaders in the state have touted the measure as a method for enticing more businesses to incorporate in the state.

Tesla did not immediately respond to a request for comment.

Musk shifted Tesla’s incorporation to Texas last year after a judge in Delaware struck down a “moonshot” package of stock options for Musk. 

The compensation agreement, approved by shareholders in 2018, was initially worth US$2.6 billion and spiked to US$56 billion by the time it was voided in early 2024. Plunging and soaring with the company’s fortunes, it has been valued in excess of US$100 billion when the shares have climbed.

The package was challenged by a shareholder who argued that Tesla’s directors didn’t make proper disclosures about the terms and performance benchmarks required. Delaware Chancery Court chief judge Kathaleen St J McCormick agreed, finding that Musk had undue influence over the process and that Tesla’s board, which includes longtime friends and associates, was rife with conflicts of interest.

Tesla has appealed that decision to the Delaware Supreme Court, a process that could still take months. Shareholders voted last year to re-ratify the prior package, part of a symbolic effort to bolster Musk’s legal case.

Tesla disclosed in a regulatory filing last month that the board had established a special committee to consider compensation matters involving the CEO. BLOOMBERG