Elon Musk is once again testing the boundaries of the law on fiduciary duties. In September 2025, Tesla proposed to give him a new compensation package valued at more than $1 trillion, the largest in corporate history. Shareholders are scheduled to vote on the package this November. The proposal comes less than a year after Chancellor Kathaleen McCormick declined to reinstate Musk’s earlier $56 billion plan, even after it was re-ratified by shareholders, citing flaws in the board process and disclosure. Tesla has re-incorporated in Texas, but other Delaware companies will likely grant similarly enormous pay packages to their CEOs, continuing to present the state with difficult questions of corporate law

As I discuss in a new paper, these events highlight a broader governance challenge: the rise of the superstar CEO. The challenge was first addressed in the academic literature by Malmendier and Tate (2008) and more recently by Hamdani and Kastiel (2023). It refers to a class of prominent CEOs who derive authority from their charisma more than the size of their equity stakes, from the market’s perception of them as indispensable, and from their reputational capital. Figures such as Elon Musk, Jensen Huang of NVIDIA, and Sam Altman of OpenAI are prominent examples. Their ascent raises an urgent question: Can Delaware’s fiduciary framework limit the risks posed by powerful executives whose control derives from market faith rather than shareholding?

From Controllers to Superstars

Corporate law focuses traditionally on majority controllers or entrenched minority holders who exercise formal voting power through dual-class structures or pyramids. Scholars such as Lucian Bebchuk and Kobi Kastiel have long warned that such arrangements inflate agency costs.

Superstar CEOs present a different problem. They often hold modest equity positions. Musk owns about 12.8 percent of Tesla. Huang owns about 3.5 percent of NVIDIA. Yet both command disproportionate influence. Their authority stems from market belief in their indispensability. Boards hesitate to resist them for fear of investor backlash. Shareholders accept governance practices they might otherwise reject, convinced that the executive’s vision uniquely drives value.

In Tornetta v. Musk, Chancellor Kathaleen McCormick recognized Musk as a superstar CEO and identified him as a “transaction-specific controller,” not because of his ownership stake but due to his extraordinary influence over the board. That recognition marks a doctrinal shift: Informal influence, too, can distort governance.

The Risks of Celebrity Control

Superstar CEOs generate distinctive agency costs.

Entrenchment through procedure and contract. Tesla’s bylaw amendment requiring shareholders to hold at least 3 percent to file derivative suits illustrates how executives can use statutory provisions to blunt accountability. Delaware’s new DGCL Section 122(18), which permits governance contracts with stockholders, opens further possibilities for entrenchment.

Reputational spillovers. Huang’s comments on technological timelines have moved entire markets. Musk’s political interventions in Europe have coincided with sharp declines in Tesla’s sales. His clashes with President Donald Trump caused Tesla’s stock price to plunge. When CEOs embody their firms, personal controversies translate directly into corporate costs.

Key person dependency. Sam Altman’s brief ouster from OpenAI in 2023 nearly caused the company to collapse as employees and investors revolted. The episode underscored the fragility of firms that tie survival to one individual.

These dynamics suggest that fiduciary law must move beyond its focus on formal ownership if it is to address the governance risks of superstar CEOs.

Delaware at a Crossroads

Delaware responded to the phenomenon of superstar CEOs with both innovation and hesitation. On one hand, Tornettatreated superstar influence as a legally relevant form of control. On the other, the legislature quickly enacted Senate Bill 21, which narrowed possibilities for fiduciary litigation and signaled a tilt toward controller deference. The so-called “DExit,” in which prominent corporations shift their incorporation from Delaware to other states, poses a direct test of the judiciary’s capacity to strike the right balance between deferring to executives and holding them accountable.

Why Market Discipline Falls Short

Relying on markets to discipline superstar CEOs has limits. Index providers briefly excluded dual-class companies from the S&P 500 after Snap’s IPO, only to reverse course by 2023. Institutional investors, though powerful in theory, often hesitate to abandon firms that deliver high returns.

Tesla’s trajectory demonstrates these limits. Despite repeated governance controversies, its value has soared, buoyed in no small part by Musk’s persona. Shareholders may rationally accept governance risk for growth, but the law cannot assume that markets will consistently internalize the long-term costs of celebrity control.

Toward a Legal Response

The law must adapt to meet this challenge. Below are several possible reforms, each designed to restore accountability without stifling entrepreneurial vision.

1. Strengthening disinterested shareholder voting.
   Ratification has long been a safe harbor in Delaware corporate law, but its effectiveness depends on whether shareholder approval is genuinely independent. In cases involving superstar CEOs, where investors may be influenced by reputation as much as by information, ratification may mask coercion-by-narrative. Delaware could refine the doctrine by excluding the shares of executives and their affiliates from the denominator, as is already common in “majority of the minority” voting frameworks. Courts could also apply enhanced scrutiny to confirm that information about proposed corporate actions was not distorted by executive influence.
2. Reinforcing board independence.
   Current independence standards focus on financial ties and employment relationships. Yet boards can be captured by reputational dependence, personal loyalty, or fear of shareholder backlash if they resist a popular executive. Delaware could expand its definition of independence to include social and reputational ties. To strengthen board independence, Lucian Bebchuk has proposed that directors responsible for major decisions and oversight of key executives be subject to confirmation by a majority of the minority shareholders. Delaware could consider adopting such a mechanism to ensure that directors charged with monitoring superstar CEOs remain accountable to investors rather than to the executives themselves.
3. Expanding fiduciary duties to cover reputational harm.
   Traditional fiduciary law emphasizes conflicts of interest and financial self-dealing. But superstar CEOs often generate risk through political posturing or reputationally damaging conduct that undermines corporate value. Delaware could clarify that the duty of loyalty and good faith includes a responsibility to refrain from conduct unrelated to the firm that nonetheless predictably harms it. This would not chill political speech but would recognize that when an executive’s persona and the firm’s brand are inseparable, reputational harm is a form of corporate harm.
4. Adopting fiduciary clawbacks.
   Securities law clawbacks, such as those under the SOX Act and the Dodd-Frank Act, are limited to accounting restatements. They do not address reputational harm or misconduct outside financial reporting. Delaware could develop a doctrine of fiduciary clawbacks, allowing boards or courts to reclaim extraordinary compensation if an executive’s conduct causes substantial and lasting injury. This method has been used before and proven effective in the wake of the Wells Fargo fake-account scandal, where shareholder pressure and independent oversight mechanisms played a critical role in restoring accountability.

Conclusion

The superstar CEO phenomenon forces Delaware to confront a new category of control, one rooted in charisma, indispensability, and narrative authority. It reflects not just investor endorsement but investor dependence. If fiduciary law remains anchored solely in ownership and formal control, it risks irrelevance. Recognizing the market perception of indispensability as a source of power, and developing doctrines to constrain it, is essential. Strengthening disinterestedshareholder voting, enhancing board independence, expanding fiduciary duties, and adopting clawbacks, are necessary steps toward restoring accountability.

This post comes to us from Chen Wang, JSD at the University of California, Berkeley – School of Law, and research fellow at the Center for Digital Economy and Legal Innovation of UIBE. It is based on his recent article, “The Architecture of Control and Fiduciary Limits: Rethinking Superstar CEOs,” available here.