Legal News for Tues 5/28 - Closing Arguments in Trump Trial, Rejection of Musk's $56b Pay by Proxy Firm, Meta's Court Ruling on Stakeholderism

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This Day in Legal History: Frederic Maitland Born

On May 28, 1850, Frederic William Maitland, a prominent English legal historian, was born. Maitland is renowned for his contributions to the study of English legal history. He co-authored the seminal work "The History of English Law Before the Time of Edward I" with Sir Frederick Pollock. This book, published in 1895, remains a fundamental reference in the field of legal history, providing a detailed examination of the development of English law from its early roots up to the 13th century.

Maitland's meticulous research and ability to contextualize legal developments within broader social and political frameworks revolutionized the understanding of legal history. His work at Cambridge University, where he served as Downing Professor of the Laws of England, further solidified his reputation. Maitland's legacy endures through his scholarly works and the ongoing influence they have on the study of legal history.

Frederic Maitland's birth on this day marks the arrival of a scholar whose impact on legal historiography is still profoundly felt, shaping the way historians and legal scholars interpret the evolution of legal systems in England.

Closing arguments are set to begin in the criminal trial of former President Donald Trump in New York, where he faces charges of falsifying business records. The trial centers on allegations that Trump, 77, unlawfully covered up a payment to adult film actress Stormy Daniels to silence her claims of a sexual encounter prior to the 2016 election. Prosecutors will argue that Trump falsified business documents to hide this payment, which they claim amounted to an illegal campaign contribution.

Trump's defense will aim to convince the jury of his innocence by questioning the credibility of prosecution witnesses, especially Michael Cohen, Trump's former lawyer. Cohen testified that he managed the payment to Daniels and that Trump approved the cover-up, but Trump's lawyers highlighted Cohen's past felony convictions and history of dishonesty to undermine his reliability.

The jury's decision could lead to Trump facing up to four years in prison, though actual imprisonment is unlikely for a first-time offender. A conviction would not bar Trump from running for or holding office if he wins the upcoming election against President Joe Biden. Trump, who has pleaded not guilty to all charges, claims the legal actions against him are politically motivated.

In addition to this trial, Trump faces three other criminal prosecutions, including charges related to attempting to overturn the 2020 election results and mishandling classified information.

A key legal focus is on the elevation of normally misdemeanor charges of falsifying business records to felony charges. This elevation is based on the argument that the falsification was intended to conceal another crime, namely an illegal campaign contribution. This strategy demonstrates the prosecution's attempt to frame the hush money payment as part of a broader illegal scheme, significantly raising the stakes for the defendant.

Jury in Trump hush money trial to hear closing arguments before deliberations | Reuters

On May 25, 2024, proxy advisory firm Glass Lewis recommended that Tesla shareholders reject a proposed $56 billion pay package for CEO Elon Musk. The package, if approved, would be the largest ever for a CEO in the United States. Glass Lewis cited concerns about the excessive size of the pay deal, its potential dilutive effect, and the concentration of ownership. Additionally, they noted Musk's numerous time-consuming commitments, including his recent acquisition of Twitter, now rebranded as X.

The proposed compensation plan, put forward by Tesla's board, does not include a salary or cash bonus. Instead, it offers rewards based on Tesla's market valuation, which needs to increase to $650 billion over a decade starting from 2018. Currently, Tesla's market value stands at approximately $571.6 billion. In January, a Delaware judge nullified the original pay package, prompting Musk to consider moving Tesla's incorporation from Delaware to Texas, a move Glass Lewis also criticized.

Despite these recommendations, Tesla's board has urged shareholders to reaffirm the compensation plan, arguing that Musk's leadership has driven significant financial and operational improvements since he became CEO in 2008. The proxy advisor also advised against the reelection of Kimbal Musk, Elon Musk’s brother, to the board, while supporting the reelection of former 21st Century Fox CEO James Murdoch.

Proxy firm advises shareholders to reject Elon Musk's $56 billion pay package | Reuters

A Delaware Chancery court ruling recently dismissed a shareholder lawsuit against Meta Platforms Inc., which accused CEO Mark Zuckerberg of prioritizing company profits over broader social and economic responsibilities. This decision received unexpected support from advocates of stakeholder capitalism. The lawsuit argued that Meta's leadership had a duty to enhance the portfolios of diversified institutional investors by considering broader social impacts. However, the judge dismissed these claims, emphasizing that while externalities are an appealing concept, enforcing such obligations in corporate law could undermine essential safeguards.

Boston University law professor Madison Condon noted that clear accountability is necessary for managing share prices, as opposed to balancing multiple vague objectives, which could allow directors to act without clear constraints. Similarly, Southern Methodist University law professor Carliss Chatman warned that a ruling in favor of the lawsuit could have allowed corporations to justify almost any action under the guise of economic benefit.

Rick Alexander, CEO of Shareholder Commons, who supported the lawsuit, pointed out that the current corporate framework makes it nearly impossible to hold directors accountable unless there is a clear conflict of interest. Despite the ruling, Alexander believes the lawsuit succeeded in raising important issues about corporate responsibilities and stakeholder interests.

The ruling reaffirmed Delaware's implicit adherence to shareholder primacy, dismissing the argument for a stakeholder-focused approach. It highlighted that corporate boards' fiduciary duties are primarily to grow investor capital, not to address external social concerns.

Law professor Ann Lipton from Tulane University cautioned that imposing stakeholder governance could lead to unworkable situations, allowing corporate leaders too much leeway to pursue their own preferences. She also referenced economic literature suggesting that diversified asset managers might inadvertently encourage anti-competitive practices, challenging the narrative of their positive social impact.

The court's decision underscores the ongoing debate about the role of corporations in balancing profit-making with broader social responsibilities, reflecting the complexities and potential pitfalls of shifting toward a stakeholder governance model.

By way of very brief background, stakeholder governance is a corporate framework where the interests of all stakeholders, including employees, customers, suppliers, and the community, are considered in decision-making processes. This contrasts with shareholder primacy, which prioritizes maximizing shareholder value above all else. Stakeholder governance aims to balance the needs of various groups to create sustainable long-term value, while shareholder primacy often focuses on short-term financial returns. This approach can lead to more ethical and socially responsible business practices, fostering a broader sense of corporate accountability.

Meta Ruling Rejecting Stakeholderism Embraced by ESG Boosters

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