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Delaware faces exodus of tech companies
- User23 2y agoDelaware throwing away its reputation as a reasonable, reliable, and above all predictable place for corporate law is an incredible own goal that more people should be talking about.
- butter999 2y agoTheir reputation is being friendly to shareholders. Shareholders brought a suit alleging Musk's pay package was inappropriate. It came out in the lawsuit that the people charged with negotiating with Musk were actually taking direction from him. However you feel about that, I think it's easy to acknowledge that if the people negotiating on your behalf were being instructed by the counterparty, you probably didn't get the best deal you could. The court's decision was reasonable and probably would've been similar in any jurisdiction. This exodus appears to me to be part petty feud and part cargo cult.
- richwater 2y ago> Their reputation is being friendly to shareholders. And then the shareholders voted and it passed...?
- JumpCrisscross 2y ago> then the shareholders voted and it passed...? Not the same shareholders. If the new vote had been on a new package, that would have been unambiguous. The bottom line is Musk and Mark don’t want Boards. That’s honestly fine if everyone agrees ex ante those are the rules they’re playing by. Delaware law requires independent Boards. Sort of like a quorum requirement, the company can’t do certain things if it’s deficient in this respect. Texas law apparently doesn’t.
- bradley13 2y agoAd I understand it, after the initial ruling, the shareholders voted and passed the package again. The judge still disallowed it. She appears to be ruling based on ideology instead of law.
- JumpCrisscross 2y agoLiterally the comment below you.
- dkjaudyeqooe 2y agoYou're obviously a great legal scholar. Did you read the ruling? The "passed the package again" tried to resurrect the original incentive payments, retroactively. That was disallowed.
- 9283409232 2y agoWhat's the own goal? All I know is that a judge vetoed Elon paying himself an absurd amount. Is that really what this is all about? Billionaire mad he didn't get more billions?
- adastra22 2y agoIf you're on this site, surely you know the difference between a stock option and a stock grant? Elon's pay package was options, and was only evaluated at ~$2bn over many years in 2018, and even then assuming significant growth. At the time of grant, the options were worth $0. The only reason the pay package is so astronomical now is because the Tesla stock has risen astronomically in value. Which benefits the shareholders, no? This dilution in shareholder value is already factored into the rising price.
- 9283409232 2y agoGoing by this comment, it appears there was some sloppiness on Tesla's side of things and the judge is being a bit of a hard ass here. https://news.ycombinator.com/item?id=42901804 https://news.ycombinator.com/item?id=42901804
- JumpCrisscross 2y ago> a judge vetoed Elon paying himself an absurd amount Not technically correct. Tesla is allowed to gift Elon everything it owns. The problem was Tesla didn’t follow the rules in how to do it such that the shareholders were ensured an honest negotiation between themselves and management. The Board was not independent, and the shareholders at the time of the grant didn’t approve it. A later cohort signed off on it, but it was still backdated. The only downside to making a new grant are the tax implications.
- dkjaudyeqooe 2y agoThe judge vetoed a pay packed designed by directors who were not independent of Musk. Musk was just sloppy and greedy. He could have got it if he had acted within the law, but then he probably wouldn't have gotten as much.
- bouncing 2y agoThe same could be said of America in general. It’s totally unpredictable, and the people in charge are not especially reasonable.
- dkjaudyeqooe 2y agoMusk's companies plus Meta and Dropbox does not an exodus make. The article is all clickbait.
- sanxiyn 2y agoIt also mentions Dropbox.
- dkjaudyeqooe 2y agoFixed, thanks. But still not an exodus.
- kittikitti 2y agoThis is because Delaware stopped Elon's pay package, is there anything else I'm missing? I think incorporating in Texas or Nevada will net short term wins but there's a lack of long term infrastructure. This signals the decline of the American tech companies as they make their decisions based on vibes not engineering.
- JumpCrisscross 2y ago> is there anything else I'm missing? We’re seeing a shift away from shareholder sovereignty to cult of the founder. Texas is an alternative to the former, which is the Delaware default.
- matthewdgreen 2y agoThere will be a major market correction in the next few years and we'll see how this all goes.
- meta_x_ai 2y ago[dead]
- graeme 2y agoThe Delware Court of Chancery in 2023 made corporate officers personally liable. Huge policy shift. https://www.cov.com/en/news-and-insights/insights/2023/04/for-the-first-time-a-delaware-court-holds-that-corporate-officers-have-a-duty-of-oversight https://www.cov.com/en/news-and-insights/insights/2023/04/fo...
- jfengel 2y agoLack of infrastructure doesn't matter. These companies weren't physically located in Delaware anyway. It can be a pure matter of paperwork.
- adastra22 2y agoHave you followed the Elon pay package suit in detail? It was quite clearly an activist judge and the ruling is suspect on many levels. The first ruling might have been ok, as there was some irregularities with how the original pay package was approved. The second ruling was after Tesla dotted their i's and crossed their t's, getting ~80% shareholder approval, with Musk and his brother abstaining from the vote. Basically they fixed everything the judge said was wrong/irregular about the original pay package. The judge still threw it out, in December of last year, pretty much on vibes. Even legal experts well versed on Delaware law were confused by this. It is a rather unprecedented action by an activist judge in a state that is specifically known for clarity of the law. It really did undermine all trust in Delaware, and the very foundation of why people incorporate there in the first place.
- kyledrake 2y agoGiven extremely recent events, as a controller I would be far more nervous about locating my company in hostile states (regardless of ideological bent) that actively persecute companies for culture war nonsense, fabricated claims of censorship, books that the government thinks people should not be allowed to read, requiring drivers license storage for adult content viewing, abortion criminalization (have fun fighting those John Doe subpoenas!), "save the kids from addiction" laws enforced by arbitrary interest group censors, etc. Tech companies are foolish if they think they're going to be harassed more by quiet, stable, corporate tax shelter Delaware than the Yosemite Sams that run Texas. They're practically drowning in the evidence already.
- gedy 2y agoThe compensation and personal liability for leadership is more expensive to their bottom line vs cultural war shaming, etc. (Which most companies have likely never cared about to begin with)
- indy 2y ago[flagged]
- rufus_foreman 2y ago>> books that the government thinks people should not be allowed to read Do you have any examples of this? Which books would I not be allowed to walk into a bookstore and buy, or order off of Amazon, and in which states?
- inetknght 2y ago> Which books would I not be allowed to walk into a bookstore and buy, or order off of Amazon, and in which states? You're looking in the wrong places. Try asking the same question but for schools and libraries. https://tsta.org/teaching_and_learnin/hb900/ https://tsta.org/teaching_and_learnin/hb900/ https://www.texastribune.org/2023/10/11/texas-library-book-bans/ https://www.texastribune.org/2023/10/11/texas-library-book-b... https://www.dallasobserver.com/news/list-of-texas-banned-books-shows-state-has-most-in-us-17480532 https://www.dallasobserver.com/news/list-of-texas-banned-boo...
- nine_zeros 2y agoShouldn't this cause shareholders to sell shares in these companies?
- JumpCrisscross 2y ago> Shouldn't this cause shareholders to sell shares in these companies? I don’t think there is a clear argument for that. Not yet. Maybe protecting shareholder rights drives shareholder value. Maybe tiny monarchs make them richer.
- TheOtherHobbes 2y agoTesla's and Twitter's sales trajectories suggests otherwise. So does the billions wasted on the Metaverse. If you want technological and social progress, letting a handful of thin-skinned petulant boy kings run around having mad ideas without oversight isn't the direction you want to go in.
- JumpCrisscross 2y agoThe alternative hypothesis is Musk and Mark will have a lot of influence in Austin. That might let them transfer value from Texas’s taxpayers to their companies. Again, I don’t think this is a simple analysis.
- nullc 2y agoI suspect you're getting fooled by terminology. When you see "rules protecting shareholder rights" when you should be reading in this context is "rules inviting massive lawsuits from plaintiff attornies nominally representing super minority shareholders against the express will of the supermajority of shareholders and causing significant legal expenses to companies (and thus their shareholders)". With that re-framing perhaps its more clear why savvy shareholders are not very interested in this form of "shareholder rights".
- graeme 2y agoI was curious to know the context and on 2023 the Delaware Court of Chancery made corporate officers personally liable. Very big shift. https://www.cov.com/en/news-and-insights/insights/2023/04/for-the-first-time-a-delaware-court-holds-that-corporate-officers-have-a-duty-of-oversight https://www.cov.com/en/news-and-insights/insights/2023/04/fo...
- boole1854 2y agoThat article states: > Although some scholars and practitioners have long argued that officers should or do owe a duty of oversight, and as a practical matter many officers likely assume that they have such an obligation, McDonald’s marks the first time this duty was explicitly acknowledged by a Delaware court. To me this seems to imply that the ruling was incorporating the already existing practice into law, which would seem to imply that it isn't a big shift.
- dkjaudyeqooe 2y ago"Based on McDonald’s, officers, like directors, now have a duty of oversight. Officers will be liable for violating that duty if, within their area of responsibility, they consciously fail to make a good faith effort to establish information reporting systems, or they consciously ignore red flags that arise from those reporting systems or otherwise come to their attention." Most people would have assumed this is already the case. It's not exactly shocking.
- raverbashing 2y agoAs with the RTO mandates, this sounds more like a "everybody is doing it so we should do it" instead of an actual "must do" thing
- krupan 2y agoTwo companies leaving (out of how many hundreds if not thousands of businesses registered in Delaware) is "an exodus"?
- taxman22 2y agoAt this point only 2 of the top 8 companies by market cap will be incorporated in Delaware. As Tesla and Meta move, investors in startups will need to be more open to investing in companies formed outside Delaware.
- loeg 2y agoMeta is one of the biggest companies in the world and responsible for a significant chunk of S&P500 returns.
- miohtama 2y agoAlso new companies stop coming https://cowboystatedaily.com/2024/12/06/wyoming-overtakes-delaware-for-most-per-capita-incorporations-in-the-nation/ https://cowboystatedaily.com/2024/12/06/wyoming-overtakes-de...
- ybfqsgaF 2y agoDelaware is not a level playing field. If someone libeled and defamed by radical PSF representatives would sue the PSF, what chances are there in Delaware? This is a good move by tech companies (which should also defund the PSF).
- JumpCrisscross 2y agoWhat’s PSF?
- dkjaudyeqooe 2y agoThe Python Software Foundation? Those guys are out of control.
- pilingual 2y agoNevada has long been an alternative to Delaware for C corps. Any ideas what advantage Texas has over Nevada? Or simply: why not Nevada?
- JumpCrisscross 2y ago> why not Nevada? Texas gives out goodies. And fewer people want to live in Nevada than Texas.
- dkjaudyeqooe 2y agoA company's incorporation location has nothing to do with where it does business. And what goodies does Texas give out? Like the ones that Disney got?
- inetknght 2y ago> A company's incorporation location has nothing to do with where it does business. That's honestly a really big problem.
- JumpCrisscross 2y ago> honestly a really big problem Why? Every business is going to be where its customers are not to some degree. That’s just fundamental to trade and, like, hadrons.
- inetknght 2y ago> Why? > > Every business is going to be where its customers are not to some degree. Every business should be prepared to deal with legal issues in whatever jurisdiction they're doing business in. Being incorporated somewhere else to avoid or prefer laws (such as taxes, or employment, or shareholders) is therefore reprehensible. If you go to a different state and break the laws there, you can't magically claim that a different state has jurisdiction just because that's where you were born. Alas, that's exactly what businesses seem to have and abuse.
- patrickhogan1 2y agoFounders of dual-class companies—think Drew Houston at Dropbox or Mark Zuckerberg at Meta—should watch out. Delaware courts are starting to invalidate shareholder agreements where the founder has control of the board thing. The fun thing about the Moelis case is that the Delaware Court of Chancery in 2024 sided with a minority shareholder against Ken Moelis. Which is kind of wild when you think about it. You’re a minority shareholder. You invest in Moelis & Company, an investment bank that Ken Moelis—yes, that Ken Moelis (https://en.wikipedia.org/wiki/Ken_Moelis https://en.wikipedia.org/wiki/Ken_Moelis), the famous dealmaker whose name is literally the brand—controls through majority voting power and ownership. And then you go, “Wait a second, Ken Moelis has too much control over the board of Moelis & Company!” Yeah, that’s sort of the whole point. And this is where people start saying, “Huh, maybe this court is getting a little too activist.” Wasn’t the whole idea of incorporating in Delaware that it’s business-friendly? That it streamlines governance and makes it easier to run a company?
- fullshark 2y agoWhat's the point of owning a share of a company if you have no say over its board of directors?
- patrickhogan1 2y agoWhen I look at cases like this, I think about it from the perspective of the investor who is suing: 1. Were you aware that the stock you were buying was founder-controlled? In the Moelis case, this was fully disclosed to shareholders. 2. In a free market, shouldn’t investors be able to decide for themselves whether founder-controlled companies offer better returns—and invest accordingly? There are plenty of companies with traditional governance structures for those who prefer them. 3. If you own one share with one vote, should that give you the power to dictate the corporate structure for everyone else? I completely agree that shareholder protections matter. The question is whether these lawsuits are really about protecting shareholders—or if they’re more about generating profits for attorneys through litigation. Ultimately, the market provides options. We have 50 states, each with the ability to set its own corporate governance laws. Companies aren’t locked into one approach—they can choose the legal framework that best aligns with their needs. Delaware has long been the preferred choice, but as its legal environment shifts, states like Nevada, with their statute-driven approach, may become more attractive for businesses looking for stability. Competition among states is a feature of the system, not a flaw.
- deleted 2y ago[deleted]