Delaware Law Has Entered the Culture War

New York Times

08-02-2025

The clubby insular world of corporate law has entered the culture war.
First, Elon Musk started railing against Delaware, which for more than a century has been known as the home of corporate law, after the Delaware Chancery Court chancellor, Kathaleen McCormick, rejected his lofty pay package last year.
Eventually he switched where Tesla is incorporated to Texas.
Now, Dropbox has announced shareholder approval to move where it is incorporated to outside Delaware, and Meta is considering following suit. Others are also evaluating whether to make the move, DealBook hears.
Musk's ire against the state where nearly 70 percent of Fortune 500 companies are incorporated brought what would usually be an esoteric issue to the national stage and framed it, alongside hot button issues like diversity, equity and inclusion programs, as one further example of overreach.
'You can blame McCormick or you can blame Musk — or you can say it's a combination of the two of them — but it has turned it into a highly ideologically charged political issue, which it never, ever was before,' said Robert Anderson, a professor at the University of Arkansas School of Law.
The drama over court rulings could have huge consequences for the economy and politics of Delaware, which counts on corporate franchise revenue for about 30 percent of its budget — and more, if you count secondary impacts like tax payments generated by the legal industry.
At issue is a longstanding question in corporate America: How much say should minority shareholders have, especially in a controlled company? One side argues that founders like Mark Zuckerberg are given controlling shares, which give them outsize influence in a company, with the belief that they know what is best for a company. And minority shareholders buy into a company knowing their limitations. The other side argues these controlling shareholders are not perfect.
The disagreement has now been amplified as founders have become increasingly comfortable voicing their own views loudly. At a time when Trump has promised reduced government regulation, they'd also like to minimize the power of minority shareholders in corporate governance.
This isn't the first time Delaware has come under heat. Frank Shawe, the C.E.O. of the language and business services company TransPerfect, mounted a multiyear campaign against Delaware after the court effectively seized his business during a fight with his ex-wife and co-owner. That campaign included a lawsuit against one of the Delaware court judges, a $2 million advertising campaign and support for a $1 million PAC opposing Bethany Hall-Long, a candidate for governor last year, arguing that Hall-Long had 'failed to support judicial diversity' in her time as state lieutenant governor. (Hall-Long lost in the Democratic primary.)
But Musk has made the spotlight brighter. McCormick, who first sparred with Musk over his $44 billion acquisition of Twitter, rejected the entrepreneur's massive compensation in January, arguing that shareholders had not been properly informed and that Tesla's board members were not sufficiently independent. In December, she again ruled against the package, even after shareholders showed their support by voting in favor of it.
That latter decision, in particular, got some pushback from the legal community. And, unsurprisingly, Musk and Tesla shareholders descended. 'Absolute corruption,' Musk wrote of the decision.
Other blows followed. In a major decision last year, the Delaware court's vice chancellor, J. Travis Laster, ruled that company boards cannot effectively hand over power on key issues — like deals and executive compensation — to a controlling shareholder. That ruling, which centered on the power bequeathed by board members to Ken Moelis, the controlling shareholder of the investment bank Moelis, put Delaware and its advisers into a tizzy.
Then, in an extraordinary move, the court effectively undid that decision, passing an amendment this summer that allowed companies to enter such agreements. A heated debate over that amendment on the floor of the state legislature soon evolved into a contentious argument about the direction of Delaware's corporate law.
'Right now, the corporate market is not feeling good about Delaware,' a former state judge, William Chandler, said on the House floor, pinning that sentiment on 'the uncertainty and unpredictability of a few decisions by just two judges,' referring to McCormick and Laster.
That debate has turned into a soap opera of corporate interests. Law school professors, who feel ardently about the law — and, perhaps, more cynically, about their relationship with Delaware judges — wrote passionate defenses. The judges, facing inordinate glare, threw social media punches.
And Delaware's Democratic governor, Matt Meyer, who has been studying ways to handle the backlash legislatively, has gone on a media spree assuring companies Delaware is working to remain hospitable for their business.
The stakes for Delaware are huge. A mass exodus of businesses 'would be crippling,' said Jonathan Macey, a professor at Yale Law School.
Moving a company's incorporation is not prohibitively expensive. And it was just made easier by a ruling involving TripAdvisor's decision to move away from Delaware, which declared that controlling shareholders would not be liable for damages that shareholders argue are incurred by the move if they moved their incorporation out of the state. (The message: Delaware isn't Hotel California.)
Delaware's governor has been trying to underline the nonfinancial costs, in particular the risk of losing Delaware's bounty of case law and experience.
And he is offering the prospect of potential concessions, like the once inconceivable possibility that judges could get less discretion over the cases they choose. (As the head of the Delaware Chancellor Court, McCormick gets first dibs on all cases.)
Companies and their lawyers 'feel like they get the same judge every time when they come to Delaware business court, and they don't feel like they're getting a fair hearing,' Governor Meyer told CNBC.
'If you feel like every day you're getting the same recess proctor no matter what — when there are a number of people who can preside over the case — maybe we need to look at that.'
— Lauren Hirsch
Elon Musk continued his blitz through Washington. He and the so-called Department of Government Efficiency have moved quickly to gain access to systems, and shutter programs across the government, including by firing almost 10,000 at the United States Agency for International Development (a move partly delayed by a federal judge yesterday). President Trump said yesterday that Musk's next cost-cutting target would be the Pentagon, which has billions of dollars in contracts with Musk's SpaceX and other companies.
Trump waded into the U.S. Steel deal. President Trump announce yesterday that Nippon Steel was planning to make a major investment in U.S. Steel after the Biden administration moved to block the Japanese company's $14 billion takeover bid last month on the basis that it was a threat to national security, a decision backed by Trump. But, with scant details, Trump announced the investment plans at a news conference with Prime Minister Shigeru Ishiba of Japan at the White House.
January jobs data showed a slowing but solid labor market. According to data released by the Labor Department yesterday, the U.S. economy added 143,000 jobs last month, slightly fewer than expected. But the unemployment rate fell to 4 percent and wages rose more than expected.
Tech giants doubled down on A.I. spending. The rise of DeepSeek, a Chinese start-up that developed its artificial intelligence model while spending much less than its U.S. counterparts, has raised questions about whether U.S. tech companies would continue their A.I. spending spree. But Amazon this week said it planned to spend $100 billion in 2025, mostly on A.I. Microsoft, Google and Meta have all said they would increase spending on A.I. this year.
Is Trump's sovereign wealth fund a new idea?
Whatever comes of Donald Trump's executive order to draw up plans for a sovereign wealth fund, it will not fit the traditional mold. Countries like Norway and Abu Dhabi power their sovereign wealth funds with surplus revenue from oil exports, but the U.S. federal government has a deep and growing budget deficit. In other words, no sovereign wealth.
Trump has said tariff revenue could be one source of funding for a U.S. sovereign wealth fund. But it's also possible that something less shocking could emerge from the directive — a financial tool with a less exciting name that many have proposed before.
What is a sovereign wealth fund anyway? 'It's been a fight,' said Paul Rose, the dean of the law school at Case Western Reserve University, who has researched sovereign wealth funds for decades, about defining the term. But basically, it's a government-owned fund that makes investments with the goal of increasing returns.
Typically there's a specific objective, like diversifying the assets of a country that is heavily dependent on one resource, and thus particularly vulnerable to commodity prices.
It may surprise many to know the U.S. already has several sovereign wealth funds run by states. The best known, and largest, is the Alaska Permanent Fund, which pays a dividend to residents each year. Other states including New Mexico, Wyoming, Alabama, Louisiana and Texas have investment funds, typically funded by oil or mineral rights revenues.
It's not clear what purposes a federal sovereign wealth fund would serve.
Strategic investment funds invest with a policy goal in mind, usually alongside private investors. Some consider them a subset of sovereign wealth funds.
The U.S. already has a narrow version of such funds. Take In-Q-Tel, a private nonprofit venture capital firm set up and financed by the Central Intelligence Agency, which invests in technology that could advance national security.
'It's trying to catalyze development of some particular industry. It's using government funds, and it has a government policy objective attached to it,' Rose said.
For Trump's proposed fund, there would be some obvious targets. Some have proposed a strategic investment aimed at keeping a technological edge. For vital technologies such as lithium processing and semiconductor chips, 'the capital required is too large for traditional venture capital, yet too risky for traditional project finance,' the venture investor Jan Jaro wrote in November.
Others have suggested funds that target large-scale infrastructure investments, which have been a key talking point for Trump in the past.
Saule Omarova, a professor at the University of Pennsylvania Carey Law School whom Biden nominated to be comptroller of the currency, but withdrew her nomination, has proposed a new institution to help fund long-term public projects, which involves a venture capital and asset management arm (one difference from a strategic investment fund: this entity would sell stakes in its funds to private investors).
'I think people would say, OK, that makes sense, that there's not enough investment in U.S. infrastructure and this can catalyze that,' Rose said. A Norway-style fund in the United State, he said, 'it's just a head scratcher.'
The madness of Super Bowl economics
This year, for the first time, you can watch the Super Bowl free online on a Fox-owned service called Tubi. You've been able to tune in online for a fee for years. But what took so long for a free streaming option? It's complicated.
Before getting to all that, some housekeeping. You can watch the Super Bowl on Sunday Feb. 9 at 6:30 Eastern time on Fox or Tubi. Who's playing? It's the Kansas City Chiefs going for a three-peat against the Philadelphia Eagles (Fly, Eagles. Fly!).
The Big Game illustrates a tug-a-war happening among entertainment giants, with broadcasters trying to serve cable companies at the same time as they move on to streaming services. It's a delicate dance that is about to get more difficult.
The National Football League has sold most of its events to the broadcasters. ABC, CBS, NBC and Fox are the most widely distributed networks, and they're free to watch, which helps the N.F.L. reach the biggest audience possible. (ESPN and Amazon Prime, which cost money, also have games.)
But those rights are costly. In 2021, the league scored a $110 billion agreement over 11 years from CBS, NBC, Fox, ESPN and Amazon to air their games. For the broadcasters and ESPN it's likely the single biggest cost item in their lineup.
To pay for those rights, the broadcasters take advantage of something called retransmission fees, which require TV distributors like Comcast or Dish to pay to carry their broadcast signals. Anyone, for example, can pick up CBS with a digital antenna, but if a cable or internet TV carrier picks it up, they have to pay for it. These fees are a boon to the broadcasters.
Cable companies can't buy only sports channels. They'd probably like to: sports are one of the last programs that still draw big live audiences. But when CBS or NBC or ESPN sell their content to distributors like Comcast or Dish, they tend to price them in a bundle. CBS, for example, is part of Paramount which also has Nickelodeon and MTV.
Hence the high cable fees.
With the erosion of cable (and those fees), broadcasters now want to stream sports directly, but it's a difficult dance. Last year saw a record low number of households paying for television, around 56 million. At its peak the pay-TV industry captured 100 million households.
By now all the major TV networks have created a streamer or acquired a companion streamer. Fox, for example, bought Tubi. They had to. Netflix was taking too many customers away. The risk is always that by selling directly to consumers, networks like ESPN or Fox would anger their distribution partners like Comcast and Dish.
Recently, Disney, Fox and Warner Bros., attempted a joint venture called Venu to sell a skinny bundle of sports channels online that would appeal to cord cutters, but it never got off the ground.
The endgame. Later this year, Disney plans to sell ESPN directly to consumers, which poses the biggest threat to the cable TV universe. ESPN underpins most of the economics of pay television. We don't know how the ESPN service will be priced, but if it's competitive with a basic cable package, it would severely cut into pay-TV revenue, and hence the fees they pay to the networks like ESPN. And round and round it goes.
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