Elon Musk railed against Delaware. Now some in the state are pushing a bill that could slow suits against controlling shareholders

Miami Herald

26-03-2025

Elon Musk seems to be everywhere this month, between firing federal workers for President Donald Trump, and news at his companies Tesla, SpaceX, and X. And his image is all over political mailers in Delaware, as part of a high-stakes but intensely local lobbying campaign over a piece of proposed state legislation.
Senate Bill 21 would make it tougher for small groups of shareholders to sue controlling shareholders like Musk or Meta boss Mark Zuckerberg for alleged conflicts of interest.
That could make it easier, for example, for Musk to collect the $50 billion-plus pay package twice blocked by the court's top Chancery judge, Chancellor Kathaleen McCormick. Or it could help Zuckerberg sink an attempt to make Meta pay its shareholders for the billions it was fined for illegally sharing customer information.
The bill was approved by the state Senate, but stalled in the House after a proposed amendment that would require each company to get shareholder approval before adopting the SB21 changes. The House is scheduled to take up the bill again Tuesday.
What's at stake?
The struggle is over corporate law changes, backed by new Gov. Matt Meyer, state Senate leaders, and local and national law partners representing big companies. They say the legislation would preserve Delaware's lucrative status as "America's Corporate Capital" and $2 billion in yearly corporate fees, a third of the state's budget.
Critics, who include activist investors, pension plans, corporate governance scholars and some of Meyer's fellow Democrats, say the state and its business-friendly Chancery Court risk losing their legal integrity to a Musk-backed corporate coup.
Why corporations love Delaware
In 1899, Delaware passed a business-friendly incorporation law, which it kept in place as other states were restricting corporations. Ever since, Delaware has been a reliable place to incorporate at low fees, and settle business disputes fast and with minimal fuss.
More than half of publicly traded companies and more than 60% of the Fortune 500 are incorporated in Delaware, the state says. Wilmington is home to branch offices of big New York, Washington and Philadelphia law firms, and homegrown firms that specialize in Chancery cases.
The Court of Chancery itself is an attraction, run by governor-appointed corporate lawyers. These chancellors and vice chancellors are specialized judges, working without juries, who can quickly settle fights among shareholders and managers.
The state's corporate rules are fine-tuned annually by way of legislation shaped by corporate and investor lawyers, and those changes are rarely controversial. This year it's different.
Is business really fleeing Delaware?
Even with Tesla making good on Musk's threat to quit Delaware for Texas, and Meta also threatening to leave, many companies are moving their legal business into Delaware.
Among U.S. startups last year, 89% were incorporated under Delaware law, Columbia law professor Dorothy Lund said Feb. 24, at a conference in New York sponsored by the University of Delaware's corporate governance program.
Lund said the lawsuit restrictions in Senate Bill 21 are mostly of interest to a small group of companies whose bosses are also controlling shareholders, like Musk and Zuckerberg are.
"I don't think this is the story of a huge threat," Lund said. "Yet we have a big reaction."
Gov. Meyer says corporate fee collections are higher this year than last. But Meyer worries the complaints by powerful CEOs like Musk, and perception by more mainstream companies that Delaware has become too friendly to plaintiffs lawyers and activists, could in time drive away business and hurt state revenues.
Who's not happy with the Chancery Court?
Phil Shawe, cofounder of the billion-dollar legal-translation company TransPerfect, had been so upset by Chancery rulings in a yearslong dispute over the company's value that he has funded a campaign of public attacks on Chancery and the Delaware "establishment" as "corrupt."
Last year Shawe spent $1.25 million on a PAC that campaigned against Delaware's Lt. Gov. Bethany Hall-Long in the Democratic primary. That helped enable Meyer to take over the state's top job.
By then, Shawe's campaign wasn't so lonely.
In 2022, Delaware's top Chancery judge, Kathaleen McCormick, rejected Musk's attempts to back out of a contract to buy the social media platform Twitter, now known as X. Then in 2024 she twice ruled that the Tesla board's plan to grant him over $50 billion in stock was illegal because the company failed to show it was in outside shareholders' best interest. McCormick wouldn't budge even when a majority of shareholders, including Vanguard Group, approved the payout.
Musk fulminated against Delaware on X then moved his companies' legal homes out of the state. He steered Tesla to Texas, which has lately established business courts in its major cities.
McCormick also ruled against Meta boss Mark Zuckerberg's 2017 attempt to transfer shares to his children while still controlling their vote. Meta now faces another Chancery complaint, by a group of pension funds, demanding compensation for Facebook's illegal sharing of customer data.
Old commandment, new vibes
At its roots, "corporate law is simple: 'Though shalt not steal,'" said Sean Griffith, a law professor at Fordham University. He compared past Delaware cases to "morality plays" in which judges reviewed whether boards had done enough to ensure shareholders' interests were protected.
But ruling against Musk's billions even after shareholders endorsed the payout may be "logically compelling but politically untenable," Griffith added.
New York University law professor Edward Rock, a longtime scholar of the Delaware court, suggested the Senate bill is a reaction to a recent "vibe" that Delaware's reputation for "sophisticated courts with business acumen" has suffered. Rich company founders find it "outrageous to be told they can't take big money" without meeting extra court-ordered conditions.
Rock worried about the "rushed" attempt to fix these perceptions by restricting judges' powers through legal limits. The more law is spelled out on the books, not left to veteran Chancery judges' discretion, the easier for competing states to copy, he added, removing Delaware's competitive advantage.
Who's for it?
The bill was drafted in the offices of Delaware's leading corporate law firm, Richards, Layton & Finger, one of several that represented Musk in Delaware litigation.
Gov. Meyer, after consulting corporate lawyers, is telling residents the law must be passed to preserve the state's ability to continue without a retail sales tax. He warned against opponents' "misinformation."
Meyer's stance marks a departure from state officials' usual reticence about corporate law.
"The Governor faced very intense pressure," said Lawrence Cunningham, head of the University of Delaware's corporate governance center, at the New York event. "He did something most governors haven't: He exercised leadership."
The bill is backed by an influential legal trio: William Chandler, a former top Chancery Court judge who now works a leading Silicon Valley's law firm, Wilson Sonsini; Leo E. Strine, a former Delaware Chief Justice, who once toured Ivy League law schools campaigning for "fair and sustainable business practices"; and Lawrence Hamermesh, professor emeritus at Widener University, Delaware's only law school.
Who's against?
The bill's critics included Charles Elson, a Delaware-based corporate-governance adviser.
"This isn't good for Delaware, or for capital markets," said Elson, before testifying against the bill at a Dover hearing. Some of the corporate law scholars who specialize in governance issues have also come out against it.
Elson predicted the bill would convince some shareholders to avoid Delaware because they would lose the power to protest self-serving CEO decisions. Activist public-pension funds and hedge-fund investors, plaintiff's lawyer groups and consumer organizations urged Delaware representatives to resist the bill.
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