New York state officials are taking aim at Tesla Inc. over a recent bylaw change that restricts shareholder lawsuits. The electric vehicle manufacturer revised its corporate bylaws in May, requiring investors to hold at least 3% of the company’s stock, valued at around $30 billion, to file a derivative lawsuit for breach of fiduciary duties.
What Happened
The New York State Common Retirement Fund, which owns approximately 0.1% of Tesla’s shares, has submitted a formal proxy proposal and letter to the company, accusing Tesla of using a “bait-and-switch” strategy to gain shareholder approval for its relocation from Delaware to Texas in June 2024. This move followed a Delaware judge’s decision to void the $56 billion compensation package granted to CEO Elon Musk in 2018.
Key Allegations
- New York officials allege that Tesla misled shareholders by promising their rights would remain intact under Texas law, only to amend its bylaws the day after Texas introduced a rule requiring 3% ownership to file shareholder derivative lawsuits.
- The officials claim that these actions effectively protect Tesla’s directors and executives from being held accountable by shareholders.
Why It Matters
The bylaw change has sparked significant controversy, particularly in light of the ongoing tensions between Musk and the U.S. government. Major investors have urged the company’s Board of Directors to hold the annual shareholders meeting, which is now set for November 6th, with Musk’s $56 billion pay package expected to be a key focus of the discussions.
Reactions from Investors and Experts
- Veteran investor Gary Black has suggested that a shareholder vote would be the fairest way to decide on a potential merger between Tesla and xAI, questioning Musk’s plans to sell xAI.
- The New York State Comptroller, Thomas DiNapoli, and the director of corporate governance, Gianna McCarthy, have signed a letter representing the retirement fund, demanding that Tesla scrap the bylaw altogether.
Current Price Action
Tesla’s stock closed at $321.67 on Wednesday, up 3.50%, and edged higher to $322.60 in pre-market trading. The company’s stock price will likely be closely watched as the controversy surrounding the bylaw change continues to unfold.