Latest news with #DExit
Yahoo
02-06-2025
- Business
- Yahoo
‘Something is awry in Delaware': New study reveals lawyers in the smallest U.S. state are winning fee ‘multipliers' from major companies up to 66 times their normal hourly rate
A new study shows attorneys in corporate cases in Delaware are earning as much as 66 times their hourly rate. That has prompted venture capitalists to increase calls for their businesses to incorporate elsewhere or move their corporation out of the state. In the past five years, the number of payouts that were 10 times the lawyer's standard rate were 57 times more frequent than in federal courts. Lawyers in Delaware corporate cases are frequently earning up to 10 times their normal hourly rate from big corporations, according to a new study from a prominent Stanford law professor—and that's fueling calls from the venture capital community for startups and corporations to consider leaving the state. The study, from Stanford's Joseph Grundfest, examined every shareholder case filed in the state since 2000, which saw attorneys paid 'multipliers' for seven times and 10 times their typical rates. What it found was over the five-year period, the number of 7X multipliers (septuples) was 23.35 times more frequent in Delaware courts than in federal courts. And the number of 10X payouts (decuples) was more than 57 times more frequent in the state than in federal courts. One lawyer, as a result of these multipliers, saw their rate jump to a jaw-dropping $35,000 per hour. Another received 66 times their normal rate. The study is raising eyebrows in the venture capital community, with Bill Gurley, former general partner at Benchmark, emerging as the loudest voice. 'There's an activist mentality in the Delaware courts,' he said in a podcast with fellow investor Brad Gerstner. 'I read this and I think any company I'm involved with, I'm going to encourage them to leave. This is radically different than why I was told [businesses] should go to Delaware.' On Twitter/X, he added, 'Something is awry in Delaware and you should know the risks.' Gurley has been a leading advocate for 'DExit,' a movement for companies to move out of Delaware. The study from Grundfest, a well-known professor, could nudge more companies to make the move. The revelation of the multipliers comes on the heels of a judge's decision to void Elon Musk's $56 billion pay package with Tesla. That company has since shifted its incorporation to Texas. (Musk also moved SpaceX.) Musk has been attempting to convince other corporations to leave Delaware as well, saying on Twitter/X that the judge in the case, Chancellor Kathaleen McCormick, is an 'activist and politician, first and foremost.' Bill Ackman, meanwhile, said his Pershing Square hedge fund will reincorporate in Texas or Nevada. And Meta, Walmart, Tripadvisor, and others have announced they are considering a move to reincorporate in other states. The Wall Street Journal, meanwhile, recently reported that three shareholders are seeking to reincorporate businesses they are affiliated with in Nevada or Texas, noting the examples of Barry Diller and Tripadvisor chairman Greg Maffei. Texas and Nevada have emerged as the beneficiary of these retreats. The Grundfest study also found the majority of these oversize multipliers came from just two chancery court judges. ('We draw no inferences from these data. Readers can reach their own conclusions,' the study reads.) In the five-year period the study examined, there were 21 septuples and 14 decuples in Delaware. That nearly matches the entire federal system on septuples and is nearly triple the number of federal decuples. 'To me this is more damning than just the one Tesla thing,' Gurley said. 'Delaware was a place where there was supposed to be business calm, where you didn't expect chaos. This shows that chaos is being built into the system and it's a recent development.' While there's plenty of talk of a DExit, Delaware isn't likely to cede its position as the go-to place for businesses to incorporate easily. It has decades of case law, which provides precedent on an extraordinarily wide ranges of business issues, as well as a specialized, efficient courts dedicated to business matters, which helps companies identify and manage risk. Delaware's governor, Matt Meyer, says he is talking with corporate leaders to gather feedback and told Fortune earlier this year that changes will be coming in the short term. 'We need to be forward thinking,' he said, 'and maybe do things a little differently to make sure we retain that status as the preeminent jurisdiction of choice for corporations around the world for many years to come.' This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
26-03-2025
- Business
- Yahoo
Delaware just passed a ‘billionaires bill' to keep Zuckerberg from following Musk out the door
Delaware lawmakers on Tuesday night passed a bill restructuring its corporate code, as the state tries to prevent companies like Meta (META) from exiting the state. The bill was designed with the hopes of preventing a so-called 'DExit,' where companies hypothetically rush to reincorporate out of Delaware and into another state, such as Texas or Nevada. Some 2.2 million entities are incorporated in Delaware, and the state was home to 81% of all U.S. initial public offerings last year. 'Delaware is the best place in the world to incorporate your business, and Senate Bill 21 will help keep it that way, ensuring clarity and predictability, balancing the interests of stockholders and corporate boards,' Gov. Matt Meyer said in a statement after signing the bill. The law most directly benefits companies that have a controlling shareholder, such as Meta, when there is a conflict of interest. It amends how a controlling shareholder is defined and makes it easier for them to work through a deal where there is a potential conflict. It also makes it more difficult for minority shareholders to inspect company records through 'books and records' requests. It was introduced on Feb. 17 and has received several amendments since then. It's been slammed by critics as rushed and as a 'billionaire's bill' designed to benefit wealthy company executives. They argue that the changes would limit Delaware's Chancery Court's ability to call out conflicts of interest, among other things. The bill could have 'potentially significant negative implications for long-term returns for investors, including people saving for their retirements, current retirees' and others, the International Corporate Governance Network warned in a letter to legislators. Concerns regarding a potential DExit began in January 2024, when Tesla (TSLA) CEO Elon Musk's $56 billion compensation package was scrapped by the Chancery Court. His appeal has been filed with the state's supreme court. About a month after the Chancery Court's decision, Musk moved his SpaceX to Texas, while Tesla followed suit following a shareholder vote later in the year. 'If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible,' Musk said in February 2024. Since then, several companies have said they are either considering or plan to leave Delaware, including Dropbox (DBX), and Bill Ackman's Pershing Square Management. President Donald Trump's media group, Trump Media & Technology Group, has also sought shareholder approval to leave Delaware. Meta has reportedly discussed reincorporation in Texas, which has billed itself as friendly to companies with controlling shareholders like CEO and co-founder Mark Zuckerberg. As part of a wider shakeup geared to win over Trump, Meta moved its trust and safety team to Texas. One day after the news broke that Meta may follow Musk out the door, Meyer reportedly met with lawyers who have represented Musk, Meta, Tesla, and others in shareholder disputes in Delaware. The day after that, CNBC (CMCSA) reports, he had meetings with a group of attorneys and state officials to discuss 'corporate franchise.' Meta has been the subject of 'books and records' investigations in Delaware in recent months, CNBC reported. Under current state law, shareholders could file cases alleging that Zuckerberg or other Meta directors caused billions of dollars in damages. However, the passage of SB 21 means that any cases brought after the day it was proposed to the assembly would be considered under that law. Those shareholders would then lack the benefits of current state laws. For the latest news, Facebook, Twitter and Instagram.
Reuters
25-03-2025
- Business
- Reuters
Delaware lawmakers to vote on corporate bill critics call giveaway to billionaires
Summary Companies Bill aims to stop firms leaving Delaware for other states Critics label it a "billionaire's bill" benefiting shareholders Opposition includes shareholder attorneys, pension fund managers WILMINGTON, DEL., March 25 (Reuters) - Delaware lawmakers are scheduled to vote on Tuesday to overhaul the state's corporate law to keep powerful business leaders like Mark Zuckerberg from moving their companies' legal home to another state, although opponents call it a giveaway to billionaires. The law, known as SB 21, is on the agenda for the Delaware House session that begins at 2 p.m. ET (1800 GMT) on Tuesday, where it must receive approval from two-thirds of the chamber's members. The bill has already been approved by the Delaware Senate and Governor Matt Meyer said he will sign it. The bill mostly impacts companies with a controlling shareholder, like Meta Platforms, which is controlled by Zuckerberg. The proposal provides steps for arranging deals between a company and its controlling shareholder, such as selling corporate assets to the controller, that cannot be challenged in court by the company's other investors. It also applies to deals between the company and board members and executives. Leaders of both parties sponsored the bill in the hopes of preventing "DExit" -- or a stampede of companies moving their legal home out of one of the country's smallest and least populated states. While other states are trying to attract corporations, Delaware still remains home to most large public companies in part because its corporate law protects board directors from being sued if they are independent and act in the company's best interest. Fees from chartering businesses generate more than 20% of Delaware's budget revenue. Several companies, mostly with controlling shareholders, have said they might or will leave Delaware, including Dropbox (DBX.O), opens new tab, Meta Platforms, opens new tab (META.O), opens new tab, Tripadvisor (TRIP.O), opens new tab and President Donald Trump's media company. On Friday, Simon Property Group (SPG.N), opens new tab, which is not a controlled company, asked its shareholders to approve moving the real estate investment trust's legal home to Indiana, where it has its headquarters, from Delaware. REITs like Simon tend to be chartered outside of Delaware. The proposed legislation has been labeled the "the billionaire's bill" by critics, which include attorneys for shareholders and managers of pension funds. The annual process to amend Delaware's corporate law rarely attracts attention but this year has been marked by high-profile opposition ads showing Elon Musk waving a chainsaw. The International Corporate Governance Network, which says its members manage more than $90 trillion in assets, warned lawmakers in a letter earlier this month the bill could have "significant negative implications for long-term returns for investors, including people saving for their retirements." Delaware Representative Madinah Wilson-Anton, a member of the majority Democratic Party, told the Breaking Points podcast on Friday that her "email inbox is unusable because I've gotten so many emails from constituents that are telling me to vote no." The bill prevents shareholders from challenging deals that are approved by a board committee that has a majority of independent directors or by a vote by public shareholders. The bill also limits records available to shareholders who want to investigate a deal for conflicts. Corporate leaders have expressed frustration in recent years over court rulings that upset certain expectations about the state's law. Tech billionaire Elon Musk fueled the debate last year by urging companies to follow Tesla (TSLA.O), opens new tab and leave the state after a Delaware judge rescinded his $56 billion pay package as CEO of the electric car maker.
Yahoo
20-03-2025
- Business
- Yahoo
Delaware lawmakers to vote on corporate law overhaul in face of criticism
By Tom Hals WILMINGTON, DEL. (Reuters) - Delaware lawmakers are expected to vote to overhaul the state's corporate law on Thursday to protect its business-friendly reputation, but opponents have called the bill a giveaway to billionaires. The bill makes it hard for investors to sue over certain transactions involving controlling shareholders, such as buying a controlling shareholder's business, if the deal follows certain steps. It also applies to deals with board members and executives, but will not impact existing rules for a takeover of the company by the controlling shareholder. Attorneys who represent shareholders have dubbed the proposal "the billionaire's bill" and have launched a public campaign against it, politicizing the normally sleepy annual process of tweaking the corporate code. The bill, known as SB 21, comes as a trickle of companies leaving Delaware raised concerns of a "DExit" stampede out of one of the country's smallest and least populated states. While other states are trying to attract incorporations, Delaware still remains home to most large public companies and related fees generate 20% of its budget revenue. Several companies, mostly with controlling shareholders, have said they might or will leave Delaware, including Dropbox, Meta Platforms, TripAdvisor and President Donald Trump's media company. The state's senate approved the bill last week and Governor Matt Meyer has said he will sign it. Amy Simmerman, a corporate lawyer in Wilmington, told the Delaware House Judiciary Committee, which approved the bill on Wednesday, that she has 15 significant corporate clients that she declined to identify which were considering leaving the state. "This is serious," she told lawmakers. "I don't think it's just bluffing." Under the proposed bill, if a deal is approved by a board committee that has a majority of independent directors or by a vote by public shareholders, investors cannot challenge it in court. Currently, litigation can only be avoided if both steps are used and the committee must be entirely made up of independent directors. The bill also makes it harder to challenge whether a director is independent. It defines "controlling shareholder" and limits records available to shareholders who want to investigate a deal for conflicts. At Wednesday's committee hearing, lawmakers focused largely on the risk of companies leaving Delaware. Witnesses included corporate lawyers, law professors and a former judge on the state's Court of Chancery, its business court, and mostly spoke in support of the bill. Public comment was dominated by opposition from attorneys who represent shareholders, who said they were excluded from the drafting process. They described the changes as radical, rushed and corrupt. Joel Fleming, who represents shareholders, told lawmakers the bill was a result of lobbying by Meta Platforms and would protect its CEO and controlling shareholder Mark Zuckerberg from potential liability that shareholders are currently investigating. CNBC published documents on Wednesday it obtained from an open records request showing that the governor met with Meta officials in the weeks leading up the bill be proposed. "Those claims may now be dead," Fleming told the lawmakers. "This is appalling." The governor's spokeswoman Mila Myles said the governor met with Meta representatives to discuss corporate law but said the company did not lobby for the bill. She said the governor has been "meeting with everyone" so the state remains a global leader. Meta declined to comment. Corporate leaders have expressed frustration in recent years over court rulings that upset certain expectations about the state's law. Elon Musk fueled the debate last year by urging companies to follow Tesla and leave the state after a Delaware judge rescinded his $56 billion pay package as CEO of the electric car maker.
Reuters
20-03-2025
- Business
- Reuters
Delaware lawmakers to vote on corporate law overhaul in face of criticism
WILMINGTON, DEL., March 20 (Reuters) - Delaware lawmakers are expected to vote to overhaul the state's corporate law on Thursday to protect its business-friendly reputation, but opponents have called the bill a giveaway to billionaires. The bill makes it hard for investors to sue over certain transactions involving controlling shareholders, such as buying a controlling shareholder's business, if the deal follows certain steps. It also applies to deals with board members and executives, but will not impact existing rules for a takeover of the company by the controlling shareholder. Attorneys who represent shareholders have dubbed the proposal "the billionaire's bill" and have launched a public campaign against it, politicizing the normally sleepy annual process of tweaking the corporate code. The bill, known as SB 21, comes as a trickle of companies leaving Delaware raised concerns of a "DExit" stampede out of one of the country's smallest and least populated states. While other states are trying to attract incorporations, Delaware still remains home to most large public companies and related fees generate 20% of its budget revenue. Several companies, mostly with controlling shareholders, have said they might or will leave Delaware, including Dropbox (DBX.O), opens new tab, Meta Platforms, opens new tab (META.O), opens new tab, TripAdvisor (TRIP.O), opens new tab and President Donald Trump's media company. The state's senate approved the bill last week and Governor Matt Meyer has said he will sign it. Amy Simmerman, a corporate lawyer in Wilmington, told the Delaware House Judiciary Committee, which approved the bill on Wednesday, that she has 15 significant corporate clients that she declined to identify which were considering leaving the state. "This is serious," she told lawmakers. "I don't think it's just bluffing." Under the proposed bill, if a deal is approved by a board committee that has a majority of independent directors or by a vote by public shareholders, investors cannot challenge it in court. Currently, litigation can only be avoided if both steps are used and the committee must be entirely made up of independent directors. The bill also makes it harder to challenge whether a director is independent. It defines "controlling shareholder" and limits records available to shareholders who want to investigate a deal for conflicts. At Wednesday's committee hearing, lawmakers focused largely on the risk of companies leaving Delaware. Witnesses included corporate lawyers, law professors and a former judge on the state's Court of Chancery, its business court, and mostly spoke in support of the bill. Public comment was dominated by opposition from attorneys who represent shareholders, who said they were excluded from the drafting process. They described the changes as radical, rushed and corrupt. Joel Fleming, who represents shareholders, told lawmakers the bill was a result of lobbying by Meta Platforms and would protect its CEO and controlling shareholder Mark Zuckerberg from potential liability that shareholders are currently investigating. CNBC published documents on Wednesday it obtained from an open records request showing that the governor met with Meta officials in the weeks leading up the bill be proposed. "Those claims may now be dead," Fleming told the lawmakers. "This is appalling." The governor's spokeswoman Mila Myles said the governor met with Meta representatives to discuss corporate law but said the company did not lobby for the bill. She said the governor has been "meeting with everyone" so the state remains a global leader. Meta declined to comment. Corporate leaders have expressed frustration in recent years over court rulings that upset certain expectations about the state's law. Elon Musk fueled the debate last year by urging companies to follow Tesla (TSLA.O), opens new tab and leave the state after a Delaware judge rescinded his $56 billion pay package as CEO of the electric car maker.
