Tesla Shareholders Show How Far Law Will Go to Protect the Board

Tesla Inc.’s 2025 annual meeting in Austin earlier this month looked like a victory lap for Elon Musk. Outside the on-stage demos of Tesla’s latest self-driving upgrades and the unveiling of its humanoid robot, Optimus, the real innovation on display wasn’t technological at all. It was a quiet revolution in corporate governance that consolidates control as effectively as any algorithm ever could.

By reincorporating in Texas in June 2024—months before the state overhauled its corporate statute through Senate Bill 29—Tesla positioned itself ahead of a shift toward management-centric corporate law. SB 29 cemented a governance model that Tesla had already adopted by charter: one that strengthens board discretion, narrows shareholder rights, and departs sharply from Delaware’s equity-based tradition.

Tesla’s meeting demonstrates how state law can rewrite corporate democracy without ever changing the name of the game. It wasn’t just a win for Musk; it was a test of how far modern corporate law will go to defer to the board.

In Delaware, Tornetta v. Musk reaffirmed that fairness and independent process are enforceable obligations. But the outcomes in Austin tell the story plainly. Tesla’s only shareholder-sponsored measure to receive a majority vote expanded Musk’s power.

Every proposal aimed at accountability, ethics, or human rights failed. The defeat of the cobalt-supply-chain proposal is particularly striking; even a resolution addressing potential child labor couldn’t withstand the procedural and cultural gravity of management control.

This is more than a jurisdictional quirk; it’s a jurisprudential shift. Texas’ legislature has effectively pre-empted equity review by converting fiduciary oversight into contractual and procedural rules. The board no longer answers to shareholders in court—it answers to itself through the bylaws it writes.

In Tornetta, the Delaware Court of Chancery invalidated Musk’s 2018 stock-option plan—then valued at $55.8 billion—after finding that he was a controlling shareholder and that the board’s process was “deeply flawed.” The court concluded that directors lacked independence and that proxy disclosures were misleading, violating Delaware’s entire fairness standard.

Delaware’s message was clear: Even an enthusiastic shareholder vote can’t cleanse a conflicted transaction when process and disclosure are compromised. Under Delaware law, fiduciary duties are constitutional commitments, not negotiable terms.

Texas takes a different approach. SB 29, adopted in May of 2025, codifies the business-judgment rule and allows corporations to restrict traditional shareholder powers through their governing documents. Directors and officers are now statutorily presumed to act in good faith, on an informed basis, and in the company’s best interests. A plaintiff must show fraud, intentional misconduct, or knowing violation of law to rebut that presumption—a bar far higher than Delaware’s “gross negligence” test, which is more simply defined as reckless indifference.

Tesla anticipated this shift. Immediately after reincorporating in 2024, it amended its bylaws to require shareholders to own at least 3% of outstanding shares—about 97 million shares worth more than $30 billion—before bringing a derivative claim. It also adopted exclusive-Texas-forum and jury-trial-waiver clauses, increased thresholds for submitting shareholder proposals, and narrowed inspection rights to exclude internal communications such as emails or texts.

When SB 29 took effect, Tesla’s governance already mirrored its core principles. The company effectively pre-adopted Texas’ model of statutory deference—a framework that privileges managerial autonomy and treats shareholder oversight as discretionary.

At the Austin meeting, shareholders approved Musk’s new pay package—potentially worth up to $1 trillion—with over 75 % of votes cast in favor. The same structure Delaware struck down under entire fairness review now stands on firmer ground in Texas.

The vote pattern was equally revealing:

• A proposal to repeal the 3% derivative-suit threshold failed, effectively reaffirming the board’s insulation from most litigation.
• The only shareholder proposal to pass authorized Tesla to invest in Musk’s separate artificial intelligence venture, xAI, extending his influence rather than restraining it.
• All environmental, social, and governance proposals failed or were excluded, including one calling for greater oversight of child-labor risks in cobalt mining.

Additional sustainability and accountability resolutions were ruled out of order under Tesla’s tightened procedural rules. Each of these outcomes would likely have invited litigation or at least reputational scrutiny under Delaware law. In Texas, they stand as lawful expressions of board discretion.

With Tesla’s 3% threshold now in place, only a handful of shareholders could realistically bring a derivative claim. This effectively limits derivative standing to Musk himself and a few of the world’s largest institutional investors—entities unlikely to challenge management decisions they helped approve.

Unlike Nevada, which allows corporations to waive fiduciary duties outright, SB 29 achieves similar ends indirectly by restricting the powers inherent to shareholders—voting, inspection, and proposals—while codifying broad statutory deference to management. The result is functionally equivalent insulation, reached through procedural limits rather than explicit waiver.

For executives, Texas offers predictability and protection. For shareholders—especially Tesla’s vast retail base—it converts ownership into observation. Only a handful of institutions or insiders hold enough shares to invoke the state’s limited oversight mechanisms.

Tesla’s move south achieved what years of Delaware litigation couldn’t: It replaced entire fairness with statutory faith in management. If more founder-led companies follow Tesla’s lead, the next corporate competition among states won’t be over tax rates or filing fees—it will be over how completely they can subordinate shareholders to management.

Columnist Carliss Chatman is a professor at SMU Dedman School of Law. She writes on corporate governance, contract law, race, and economic justice for Bloomberg Law.