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The ruling occurred as the result of\u00a0 a challenge to the Tesla<\/a> CEO\u2019s compensation package, which made him the richest man in the world over a stunning four-year run-up in Tesla results. According to Harvard Law School professor of law and economics John Coates, this kind of thing just happens sometimes in \u201cthe first state.\u201d<\/p>\n \u201cOver the past 100 years, Delaware has periodically irritated one or two executives by enforcing the law, and even led some prominent lawyers to call for companies to move elsewhere from time to time,\u201d Coates told Fortune<\/em>, adding that he was \u201cconfident Delaware will not lose significant numbers of incorporations as a result of this one decision, as uninhibited as Musk is.\u201d<\/p>\n Still, Musk\u2019s call has brought some negative attention to Delaware rulings and raised questions about overreach.<\/p>\n CEO and well-known board member Betsy Atkins wrote in Forbes<\/em><\/a> that if the ruling is allowed to stand, it \u201ccreates a slippery slope that a judge can decide to overrule and opine on what is an \u2018appropriate\u2019 compensation.\u201d She noted that 80% of Tesla stockholders approved the pay plan.<\/p>\n \u201cWe will harm our innovation culture that rewards breakthrough new category creating companies if we have activist judges deciding CEO pay and nullifying the shareholders and the board,\u201d wrote Atkins, who is the CEO of venture firm Baja Corp. and serves as a director on the boards of SL Green Realty, OYO Hotels & Homes, Volvo<\/a> Car AB and Wynn Resorts<\/a>.<\/p>\n The case is also far from settled at this point. The presiding judge, Kathaleen McCormick<\/a>, is a well-respected jurist but there are some vulnerabilities in the opinion that could form the basis for an appeal that could reverse the ruling, said Frank Placenti, board advisor and attorney at Greenberg Traurig. He said the opinion sparked a discussion at a recent American College of Governance Counsel event, and the group is planning a webinar focused on the matter.<\/p>\n Still, it\u2019s unlikely that a losing litigant could single-handedly undermine the predominance of the Delaware courts, said retired Potter Anderson partner Donald Wolfe, Jr. in an emailed statement to Fortune<\/em>. Wolfe has participated in more than 200 legal decisions in the state.<\/p>\n \u201cI very much doubt that Mr. Musk\u2019s recent bleat, which is what appears to have given rise to the recent reincorporation hubbub, is likely to have much substantive impact,\u201d said Wolfe.<\/p>\n Had Musk and the Tesla board\u2019s compensation committee pursued a process that was equivalent to an arm\u2019s-length negotiation and obtained shareholder approval based on full and candid disclosures, it\u2019s entirely possible they could have secured a different outcome, said Wolfe.<\/p>\n \u201cNo doubt they were so advised,\u201d he said. \u201cThey apparently did neither.\u201d<\/p>\n Musk has announced plans to reincorporate Tesla in Texas, where its corporate headquarters are based. Coates said Musk might not necessarily find a sympathetic legal environment there, despite Gov. Greg Abbott\u2019s push to set up specialized business courts<\/a> with appointed judges.\u00a0\u00a0<\/p>\n \u201cTexas courts have juries, not all of whom see the world the way Governor Abbott and Elon Musk do,\u201d noted Coates.\u00a0\u00a0\u00a0<\/p>\n Wolfe said he\u2019s glad to know that well-established legal principles were applied in the case without regard to \u201cthe identity of the losing parties,\u201d which is as it should be.<\/p>\n \u201cThere are perhaps other jurisdictions that, in the spirit of competition, would be inclined to look the other way when a potentially disappointed [litigant] is a celebrity of untold wealth who owns a media megaphone,\u201d he said. \u201cIf so, they warrant congratulations on having outstripped all rivals in the venerable race to the bottom.\u201d<\/p>\n<\/div>\nLawyers unmoved by Musk\u2019s bleating<\/h2>\n
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