Delaware lawmakers have taken decisive action by approving swift legislation aimed at safeguarding the state’s standing as the global corporate hub. This move comes amid fierce criticisms from influential figures, including billionaire Elon Musk, that left public officials concerned about Delaware’s future in corporate governance. The newly passed bill is now awaiting the signature of Governor Matt Meyer, a Democrat who has engaged with corporate heavyweights regarding their apprehensions over recent court decisions on corporate conflicts of interest. He emphasized to lawmakers the urgency of legislative amendments.
The legislation managed to swiftly move through both legislative chambers within a fortnight of its proposal, notwithstanding vehement opposition from shareholder attorneys, consumer advocacy groups, and pension funds labeling it as a concession to billionaires and corporate elites. The Delaware House gave its approval with a 32-7 vote following a unanimous endorsement from the Senate earlier in March.
Delaware’s expert-led corporate law courts have established the state as a premier venue for resolving myriad business disputes, serving as the legal domicile for over 2 million corporations, including a significant majority of the Fortune 500 companies. The revenue drawn from this activity presents a critical component of Delaware’s fiscal structure, underpinning approximately a third of its operational budget. This financial reliance fosters legislative trepidation about the potential corporate exodus should Delaware’s legal landscape become less favorable.
During a two-hour floor debate, Rep. Krista Griffith articulated the legislation’s complexity yet underscored the straightforward rationale: fortifying Delaware’s economy and preserving future opportunities for residents, asserting, “We have the best business court in the nation.” In contrast, Rep. Madinah Wilson-Anton cautioned against potentially detrimental impacts likening the business courts to “Delaware’s golden goose” and suggested the legislature might inadvertently impair their value.
The passage of this bill is expected to provoke legal challenges following its enactment by Gov. Meyer. Testimonies during legislative hearings revealed that businesses are flirting with the idea of relocating their legal domiciles, dubbed “Dexit,” with alternatives like Nevada or Texas being considered by emerging companies due to advisements against Delaware incorporation.
Corporate leaders vocalized grievances over unpredictability and fairness, a sentiment echoed by Musk’s censure following a voided compensation deal from Tesla estimated to be worth over $55 billion. Musk has urged potential incorporators to consider Nevada or Texas instead, and his companies, including Tesla, SpaceX, and Neuralink, have made exits from Delaware.
Further amplifying the debate, reports emerged that Meta Platforms was contemplating a move to Texas for incorporation, though the tech giant helmed by Mark Zuckerberg has not verified these claims.
Detractors of the bill criticize it for potentially skewing power dynamics against investors, including collective pension funds and individual savers, limiting their ability to hold executives accountable for breaches of fiduciary duty. The Consumer Federation of America castigated lawmakers for failing investor protection, dubbing the legislation a “Billionaire’s Bill.”
While critics argue it dismantles long-standing legal precedents, proponents assert it merely refines recent precedents, modernizes statutory language, clarifies ambiguities, and balances shareholder and corporate interests. The bill notably offers greater protections to corporate officers and principal stockholders in conflict-of-interest scenarios, restricts court-mandated disclosure of sensitive internal documents, and consequently makes it more challenging for shareholders to access potentially incriminating records.
These measures raise concerns among institutional investors who might consequently encourage the businesses in which they hold stakes to reconsider their legal affiliations.