Tesla has made a significant change to its corporate bylaws, now requiring shareholders to own at least 3% of its stock before bringing a lawsuit for breach of fiduciary duties. This marks a departure from Tesla’s previous bylaws, which had no such requirement.
Background
The change follows a lawsuit involving Elon Musk and other board members regarding Musk’s $56 billion CEO compensation package in 2018. Richard Tornetta, who owned just nine shares of Tesla stock at the time, claimed that the board breached their fiduciary duties by approving the compensation plan without negotiating with him.
A Delaware judge voided the lack of requirement in 2018 after Tornetta’s suit against Musk and the board members.
Implications of the Change
Tulane Law School professor Ann Lipton commented that this move could hinder investors like Tornetta from suing companies like Tesla in the future. She stated:
"Obviously, for a company of Tesla’s size, that would be a formidable barrier to anyone bringing a lawsuit for breach of fiduciary duty."
Tesla has not responded to inquiries regarding the reasons for the change in its bylaws or whether it was related to specific lawsuits or investor threats.
Broader Trends
This change is part of a broader trend among companies to limit shareholder rights through amendments to their corporate governance documents. Such changes can make it more difficult and expensive for investors to bring lawsuits over issues like:
- Executive pay packages
- Mergers and acquisitions that may disproportionately benefit executives
Additionally, some states are considering laws that would further restrict shareholder rights, requiring proof of fraud before claims can be brought against corporations. This can be particularly challenging in large public companies with numerous stakeholders.
Conclusion
While this change may not directly affect most shareholders—since only those owning at least 3% will be impacted—it highlights how corporate interests can shape legal frameworks that affect ordinary people’s lives. It remains uncertain whether this move will raise concerns among institutional investors holding significant stakes in publicly traded companies.
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