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PaperclipPerfector  2d ago (text post)   10573 thread views

Culture War Roundup for the week of December 2, 2024

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Isn't Tesla's registration moving to Texas for exactly that reason?

Yes, but in today's money talk, Matt Levine spoke about the tax implications of a new contract in Texas. In short, a new contract in Texas will have massively negative tax implications.

Yes. The bigger problem for Delaware, of course, is the future companies that won't register in Delaware.

Delaware's state budget is around $6 billion. There are 2 million companies registered there. It's quite possible that a large percentage of the state budget is paid for by franchise and registration fees.

Personally, I found the whole rationale for registering in Delaware pretty facile in the first place. You already have to register in the state in which you have your physical headquarters. So there's little reason to add a second state into the mix, exposing you to additional risk.

This one judge will likely cost the state billions in future revenue because of Elon Derangement Syndrome.

The reason that Delaware was the home for most publicly traded companies is that the state was one of the first to enact business-friendly structured corporate governance statutes, giving companies a predictable legal environment to work with. This also let Delaware develop a more mature tapestry of corporate caselaw earlier than other states, lending even more legal predictability. And once everyone started registering in Delaware, it was seen as displaying a lack of corporate sophistication to register in some backwater, lawless jurisdiction like New York or California.

Having anti-business, activist judges making these kinds of decisions is not great for Delaware’s reputatio , but how many executive comp packages are or ever will be even remotely close to this kind of absurd number. I would be surprised if this fact pattern ever reappears. Musk will get his payout under the Texas reorganization, so this is a relatively hollow victory for everyone except Plaintiffs’ counsel.

It's totally plausible that Musk will ask for another similar contract. I think he's mentioned that. Getting from 50 billion to 1 trillion is much bigger deal than getting it from 1 trillion to say 5 trillion. He could reaosnably request a new contract where he's rewarded with options equal to 1% of the company for every 250 billion he adds to the market cap. It's more plausible than his last contract. He merges xAI with Tesla, gets Tesla's GPU business going, FSD seems to be making massive improvements in the past months, maybe robotics and boom, your at 5 trillion, it certainly more plausible than getting Tesla from 47 billion (which was seen as overvalued) to 1 trillion. So another contract like this is totally plausible.

The fact pattern may not recur with those numbers, but it will recur with ever smaller numbers being seen as out of bounds.

Which honestly it should. Elon is a bad example in that Tesla wouldn't be where it is today without him, it's overvalued because of his perceived genius.

But look at GM and Ford! Tesla's direct competitors! Each CEO makes over $28mm, while they ceded the American passenger car market entirely to Honda and Toyota (among others). Honda and Toyota paid their CEOs $3mm and $6mm.

US executive pay is off the charts level of crazy. UK and European companies have CEOs rarely being paid more than $5 million or so and I don't think the quality of the people who become CEOs themselves is significantly better over the pond than here.

Fun fact: British American Tobacco (BAT), a large FTSE 100 company has an American Subsidary called Reynolds. The Finance Director of Reynolds, never mind the CEO, gets paid more than the global CEO of BAT based in London...

I'll try to steelman the high pay.

Let's take Musk. In the counterfactual where he leaves Tesla in 2018, the stock is down at least 95% from its current levels. So he gets paid $56 billion for generating something like $950 billion in shareholder value. I think that's fair.

What's the situation like in Europe? Well, it's grim. Twitter search sucks, but I saw a graphic comparing new companies started after 1980 in the US vs Europe. The US has huge numbers of huge new companies. The EU has only a handful of new companies that have reached a market cap of $10 billion. The US has something like 50 times as many, and the ones that do exist are much larger.

Edit: Found the chart

There's no reason to give a European CEO high pay. They are mere shopminders who are so hamstrung by regulations they can't build a big company anyway. You can't grow a redwood in barren soil.

What I can't steelman is high CEO pay for people like Mary Barra or Marissa Mayer who do an awful job as CEO, do real damage to their companies, and still get paid hundreds of millions of dollars.

What I can't steelman is high CEO pay for people like Mary Barra or Marissa Mayer who do an awful job as CEO, do real damage to their companies, and still get paid hundreds of millions of dollars.

Aren’t most CEOs compensated in equity/options, precisely to align their incentives with those of their shareholders? A CEO who is paid in shares, or in at-the-money call options struck at the beginning of her tenure will, by definition, stand to make no money by tanking her company’s share price.

I don’t know the details of the two cases you mentioned, but potentially the steelman is that from the perspective of shareholders/the board of directors/whoever decides executive comp, hiring these folks was a positive EV bet ex ante, which turned out to be a dud ex post. That a given instance of a positive EV bet pays out negative is not evidence that taking the bet was a bad decision.

I don't understand it! Especially where foreign companies are clearly outperforming American companies, why wouldn't GM target a rising Toyota exec and offer him twice what a Toyota CEO would make but half what the incompetent GM CEO makes?

You're assuming that CEO competence is unlimited in its range and potential. It could be that decisions CEOs make are fairly obvious and simple ones, that their skillsets are only somewhat more demanding than those of any other top tier professional, and that a lot of the variance of outcomes between companies comes down to more structural matters than whose at the helm. If business churn is more about structuralism than great man theory, then there are diminishing returns for attempting to poach talent.

Isn't Toyota still family-run?

You could even try to poach the literal Toyota CEO with twice his current salary... Even if he's meh at GM you've still destabilised your competition somewhat by taking away their sitting CEO. That alone is probably worth it.

Having anti-business, activist judges making these kinds of decisions is not great for Delaware’s reputatio , but how many executive comp packages are or ever will be even remotely close to this kind of absurd number.

None, presumably. But Delaware's friendly case law reputation is now shattered. I'll posit that it was never real. Companies registered in Delaware because that's what other companies did. It was always bullshit.

And once everyone started registering in Delaware, it was seen as displaying a lack of corporate sophistication to register in some backwater, lawless jurisdiction like New York or California.

The opposite now. But registering in NY or CA would be foolish as well, for obvious reasons. Small red states like Wyoming and South Dakota will replace Delaware as the go-to place for corporate registrations and have a much more credible case as defenders of the rule of law.

I create corporations from time to time and know others who do as well, and yeah, South Dakota is apparently hot right now.

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