Tesla Investors Reject Proposals to Trim Use of Texas Laws (1)

Tesla won’t have to consult shareholders before using Texas law to bar smaller investors from submitting proxy proposals or bringing lawsuits against company management.

Three shareholder proposals on the company’s proxy ballot, two of which would have curtailed Tesla Inc.‘s ability to apply management-friendly Texas laws without consulting shareholders, failed to garner majority support Thursday at the annual meeting.

Thursday’s shareholder meeting was viewed by many as a barometer for investor sentiment on Tesla’s 2024 Texas reincorporation. The state is trying to attract more public companies with a less-stringent regulatory environment. The very presence of the three Texas- focused proposals on the ballot pointed to progressive shareholders’ anxiety over the move.

• The first proposal, filed by the New York state comptroller’s office, sought to repeal Tesla’s tightened policy regarding derivative suits. The company used a state law enacted this year to set a 3% ownership threshold for shareholders to introduce lawsuits on behalf of the corporation and against its management. There was no ownership minimum before.
• The second, filed by the Illinois State Treasurer’s office, would have required a two-thirds shareholder vote to ratify any company decision to limit eligibility for submitting shareholder resolutions. Texas passed a law this year allowing companies to set a minimum ownership threshold of at least $1 million of company stock or 3% of voting shares—whichever is less—for such proposals.
• The third, filed by Newground Social Investment, was similar to the Illinois resolution. It would have required Tesla’s board to seek shareholder approval before setting ownership thresholds for shareholder proposals that are higher than those of the Securities and Exchange Commission.

Texas passed a suite of business-friendly laws this year to lure in public companies. The state’s first independent stock exchange, which promises companies some of the same benefits of reincorporation if they list, also gained SEC approval in September.

Also at Tesla’s meeting, shareholders voted to approved an executive pay package that could make Elon Musk the first trillionaire.

Investors did vote against one of the board’s recommendations, supporting a shareholder proposal to elect board directors annually. The vast majority of S&P 500 companies have adopted this board structure.

Others that failed to garner majority support included shareholder proposals to consider integrating sustainability metrics into executive pay, conduct child labor audits, and get rid of supermajority voting requirements.