Is a question I get asked a lot, especially after Musk offered an enthusiastic gesture that absolutely, positively, in no way resembled a Nazi salute pleasedon’tsueme. 

And the answer is – no. 

Even under the law of Delaware-before-SB-21 (and before Texas’s “hold my beer” alternative, which would among other things, prevent not only shareholders, but the corporation’s own board, unprompted, from suing a director or officer in the right of the corporation for anything other than fraud, intentional misconduct, ultra vires acts, or knowing violations of law), this cannot be the basis for a claim by Tesla’s shareholders against Elon Musk.

As Tesla’s CEO and a member of the board, Elon Musk owes Tesla a duty of care, and a duty of loyalty.  That means he cannot run Tesla with gross negligence – which, under Delaware law (let’s assume Texas law is no more strict), would be defined as akin to recklessness – and he cannot be disloyal, which means acting under a conflict of interest, intentionally trying to harm the company, or intentionally failing to take action to benefit Tesla when he knows he has a duty to take such action.

Let’s start with loyalty.  Whatever his motives are, he is almost certainly not intentionally trying to harm Tesla.  He may be blinded to the effects his actions are having on the brand, but he hasn’t set out to wreck it, nor is he disregarding any specific action he knows needs to be taken on Tesla’s behalf.  There are no reports, for example, that he’s letting Tesla plants idle while they wait for him to make a decision, nothing like that.

And whatever else he’s doing – even his work for DOGE which he is totally not doing it’s all Amy Gleason shut up – there is no evidence that his governmental work is causing him to deal with Tesla as a counterparty.  He is not, for example, assuming a governmental role while bargaining with the government on Tesla’s behalf (that would be what’s he’s doing at SpaceX.) If anything, his proximity to government is giving Tesla certain advantages, like an infomercial on the White House lawn.

So that leaves the duty of care.  Which might appear to be in play, to the extent Musk is ignoring Tesla in favor of his other interests.  But under Delaware law, at least, inaction is gauged – again – by conscious disregard of one’s duties.

In other words, neglect only rises to the level of a fiduciary breach when the corporate manager intentionally refuses to take actions he knows must be taken.

A shareholder couldn’t even sue on the grounds that Tesla has made false representations about Musk’s role with the company, because here’s the company’s most recent 10-K:

We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla. For example: Mr. Musk also currently holds management positions at Space Exploration Technologies Corp., X Corp., X.AI Corp., Neuralink Corp. and The Boring Company, and is involved in other ventures and with the Department of Government Efficiency….

if our ESG practices do not meet investor or other industry stakeholder expectations, which continue to evolve, we may incur additional costs and our brand, ability to attract and retain qualified employees and business may be harmed. Compliance with any current or future legal requirements on these topics may result in additional costs or risks to us, including harm to our reputation, reduction in customer demand, and increased legal and operational risks.

Which brings us to the broader issue. Whether you consider Musk’s conduct in terms of care, or in terms of loyalty, ultimately, it’s up to the board of directors to oversee his behavior.  As a formal matter, they’re the ones who “hired” him as CEO and who retain him in that role; they’re the ones who, in the first instance, have a responsibility to rein him in if he is not performing adequately.  Which is why – even if Musk had violated his duties of care or loyalty – any shareholder bringing a lawsuit first would have to demonstrate that the board is incapable of performing its own functions.

And, I mean, yeah, it’s no secret what the board’s ties are to Musk, but I find it very difficult to believe any court would go so far as to hold they were incapable of overseeing him as CEO.  After all, their stock compensation is tied to his performance as well.  Even the Tornetta decision, holding that the board was captured by Musk, only applied to the pay award – not for all things forever and for all time.

If that sounds like shareholders have a lot of hurdles to overcome before bringing a lawsuit, correct!  Because the system is predicated on the idea that lawsuits are a last resort for disciplining recalcitrant corporate managers, not a first resort.  The first resort is supposed to be the market.  Corporate CEOs (and boards) are paid with stock, so that they will care if stock prices drop.  And even if they don’t care, public shareholders will – and they’ll respond to stock drops by voting in new directors who will do a better job. The system just isn’t built to handle a scenario where a CEO, board, and public shareholders all respond with a collective shrug when a stock loses nearly half its value within the space of a few months.

And that’s not really a problem.  After all, if the stock drop was due to, I dunno, Tesla philanthropy, I probably wouldn’t be having this conversation with people.  The reason the question comes up, usually, is because the person doing the asking believes Elon Musk is causing harm in the world, and so floats the possibility that he’s violating shareholder rights as a mechanism to get him to stop.

But if you were genuinely concerned for the plight of Tesla shareholders, you wouldn’t recommend a lawsuit.  What could that possibly get you?  There’s no realistic chance of Musk, like, paying financial damages to make up for the price drop, so the only remedy would be some kind of judicial order that he focus more on Tesla, or that he be fired from Tesla entirely.  But Tesla shareholders don’t want his firing, nor should they – Tesla’s stock price is still well above what it would be for an ordinary car company.  And if Musk were to focus more on Tesla, that might be great in theory, but it’s not a command that a court can realistically enforce.

So that’s my point.  I’m not saying corporate law is irrelevant to societal outcomes – I think it does have a role to play, actually, an important role – but not quite this directly.  The formal duties that a corporate officer owes to a company are not going to be what causes Elon Musk to step back from DOGE.

Meredith Ervine at Deallawyers highlights this blog by Milbank on Advance Notice Bylaws. Two things stand out to me.

First, apparently companies are now requiring nominating activists to vote only their long positions, not borrowed shares:

While lending shares of the corporation to cover short sales may provide income for large fund complexes, it is unlikely that these fund complexes (or other long-term holders) wish to promote empty voting in a contested corporate election.  Permitting the voting of borrowed shares by an activist – amplifying the activist’s voting power when there is no meaningful economic stake in the shares being voted – misaligns voting power with the economic consequences of the vote and does not promote good long-term decision making. The Alignment ANB accordingly requires the nominating stockholder and allied participants in the solicitation to waive their right to vote shares in excess of their collective net long position – in other words, to waive the right to vote shares that were borrowed or otherwise subject to an offsetting sale or delivery obligation.

I didn’t know you could do that by bylaw! Do similar requirements apply to incumbents (a la Kiani at Masimo?).

Second, Milbank recommends questionnaires delve into the nominee’s independence from the nominating activist:

In other situations, activists will nominate “independent” directors, …At times, however, the term “independent” is applied rather liberally, …The Alignment ANB seeks to make the connections between nominees and the activist clearer, requiring disclosure of whether the nominee and activist have had discussions to align on a shared agenda for the corporation (and if so, the result of such discussions), on financial, social and family ties, and finally, on whether the nominee is expected to share confidential board information with the activist going forward. The degree of independence of any given nominee will matter acutely to voting stockholders, particularly if they are not fully on board with the activist’s platform or if their financial interests do not clearly align with the activist’s.

In light of SB 21, the concern is … ironic.

There is always something new to discover.

For example, I was reviewing the CLC version (as one does), and I noticed that in the sections providing for stockholder approval (either for director-conflict transactions, or controller-conflict transactions), language was deleted that would specifically have required stockholders be informed as to the nature of a director’s conflict and involvement in the negotiation of the transaction, and the “material facts” of a controller transaction – though this language was retained for approval at the board/committee level. Though stockholder approval must still be “informed,” I rather suspect the deletions were intended to assist with future arguments that conflicts, or flawed “negotiations,” do not undermine the effect of a stockholder vote, when the stockholders were at least informed as to the material terms of the deal.

Screenshots of the relevant deletions, here:

And here:

This is, I believe, the language included in the version of the bill that passed the Delaware Senate.

In recent years, of course, the Delaware Supreme Court has rejected many attempts at stockholder ratification on the grounds that various conflicts or negotiating flaws were concealed from stockholders, and these were the grounds on which Chancellor McCormick concluded that the stockholder vote in favor of Elon Musk’s pay package at Tesla was not fully informed. The Tornetta defendants argued, unsuccessfully, that stockholders only needed to be informed of the economic terms of the pay package, and they advance a similar argument on appeal.

Which means, I guess, that we can add City of Dearborn Police & Fire Revised Ret. Sys. v. Brookfield Asset Management, City of Sarasota Firefighters’ Pension Fund v. Inovalon Holdings, Morrison v. Berry (for a second reason), and, hell, maybe even Smith v. Van Gorkom to Eric Talley’s running list of Delaware Supreme Court cases that SB 21 will overrule.

Back to the drawing board on the BizOrgs syllabus….

And another thing. New Shareholder Primacy podcast is up! Mike Levin interviews Jeff Gramm of Bandera Partners. Here at Apple, here at Spotify, and here at YouTube.

Assistant Professor of Business Law

9-Month Tenure-Track Position

The AACSB accredited College of Business at Louisiana State University Shreveport (LSUS) seeks applications for a tenure-track scholar position from qualified scholars at the rank of Assistant Professor of Business Law starting August 2025. Applications will be considered from all candidates who meet our AACSB qualifications.

The selected candidate will report to the Chair – Department of Accounting and Business Law, and will be expected to teach at both the undergraduate and graduate levels in face-to-face and online settings. Candidate will be expected to produce scholarship at a level consistent with our AACSB Scholarly Academic standards, and actively engage in service to the department, college, university, and community.

Minimum Qualifications: Applicants must possess a Juris Doctor degree from an ABA-accredited law school and be admitted to practice law by the highest court of at least one of the United States.  Candidates must demonstrate teaching excellence.

Preferred Qualifications: Preference will be given to candidates who have at least one year of experience teaching Business Law classes.

Application: To apply for this position, a CV, cover letter, statement of teaching philosophy, copies of all transcripts that include relevant course work, and contact details of three references should be sent electronically to Tingtsen (Robbie) Yeh, Chair – Business Law Search Committee at  Tingtsen.Yeh@lsus.edu. The search will remain open until the position is filled. Selected candidates for the interview will be asked to provide three letters of recommendation. LSUS is an Affirmative Action and Equal Opportunity Employer. To be considered, the email subject must be “Tenure Track Faculty Application.” 

About LSUS: In addition to a collegial faculty, our University boasts a high percentage of faculty with terminal degrees. The LSUS College of Business currently enrolls over 700 undergraduate students pursuing majors in accounting, finance, general business, management, and marketing. Our graduate enrollment currently exceeds 5000 students in our accelerated online Master of Business Administration and Master of Health Administration programs.

About Shreveport: The Shreveport-Bossier City area offers an attractive quality of life, combining the conveniences of a big city with the warmth and hospitality of a smaller town. With a metropolitan population of more than 319,000, the Shreveport-Bossier City area offers a low cost of living, affordable housing, and many diverse dining and entertainment options. Exceptional outdoor recreation opportunities abound. Frequently called “A Sportsman’s Paradise,” the area’s mild climate, various lakes and rivers, and beautiful parks create the perfect setting for jogging, bicycling, water skiing, jet skiing, hunting and fishing. For other recreational activities, Shreveport-Bossier is home to riverboat casinos and horse racing at Louisiana Downs. Additional entertainment venues include the Brookshire Grocery Arena which hosts numerous musical events, comedians, rodeos, children’s events, ice-skating

productions, and other entertainment activities. Shreveport also hosts dozens of festivals with regional food and music, and offers regular theatrical productions, ballet performances, as well as performances by the Shreveport Symphony and the Shreveport Opera. Shreveport is also home to the American Rose Garden.

Like this Walgreen’s deal with Sycamore.

Very quick thing I note about it: It includes the equivalent of an earnout, namely, in addition to the cash consideration Walgreen’s shareholders receive, they also receive a “Divested Asset Proceed Right,” or DAP Right, which will entitle them to an additional $3 per share if Sycamore is able to sell VillageMD, (They get 70% of the net proceeds of the sale, up to $3 per share).

I don’t think the merger agreement is public yet, but this from the press release caught my eye:

WBA shareholders will receive, at closing of the Sycamore transaction, one non-transferable DAP Right per WBA share.

Why non-transferable? After all, it would be more valuable to shareholders if they could sell their DAP right, and that way informed traders could price it based on the likelihood of it reaching the $3 max payout, etc etc.

After all, that’s how Bristol did this not long ago, when it acquired Celgene:

If the merger is completed, Celgene stockholders immediately prior to the completion of the merger will be entitled to receive $50.00 in cash, one share of Bristol-Myers Squibb common stock and one contingent value right (each, a “CVR”) for each share of Celgene common stock held by them…The merger agreement obligates Bristol-Myers Squibb to use its reasonable best efforts to cause the Bristol-Myers Squibb common stock and the CVRs to be issued in the merger to be listed on the NYSE…

But look what happened! And also…. (There’s also an ongoing contract dispute). And a similar thing happened when Genzyme acquired Sanofi and paid with CVRs.

So the next time Bristol got the bright idea to buy a company using a CVR component, well:

Section 2.1 CVRs. Each CVR represents the contractual right of a Holder (granted to each Initial Holder as part of the consideration of the Merger pursuant to the terms of the Merger Agreement) to receive the Milestone Payment pursuant to, and subject to the terms and conditions of, this Agreement.

Section 2.2 Nontransferable. The CVRs shall not be sold, assigned, transferred, pledged, encumbered or in any other manner transferred or disposed of, in whole or in part, other than through a Permitted CVR Transfer; the foregoing restrictions shall apply notwithstanding that certain of the CVRs will be held through DTC. Any attempted sale, assignment, transfer, pledge, encumbrance or disposition of CVRs, in whole or in part, in violation of this Section 2.2 shall be void ab initio and of no effect. The CVRs will not be listed on any quotation system or traded on any securities exchange.

I can only assume the change was made so that the CVR would look less like a security – more like a contractual agreement – and therefore could not be the subject of a class action securities fraud claim.

And my guess is, that’s the same logic for the Walgreens/Sycamore DAP Right. Whether that’s enough to defeat the Howey test … well, that would be an intriguing Section 12(a)(1) claim, let me tell you.

And another thing. I lied, I’m still talking about SB 21, only this time in a Shareholder Primacy podcast with Mike Levin (we cover the original version as introduced by the Delaware legislature last month). Here at Apple, here at Spotify, and here at YouTube.