The recently proposed amendments to Delaware’s corporate law threaten a nuclear winter for investor protection and Delaware’s corporate law preeminence.
I care deeply about Delaware and our corporate franchise. I’m a Delaware lawyer. I grew up here. I live here. I’m raising my kids here. I had the honor of clerking in our world-class Court of Chancery. I worked at the Delaware office of one of the largest corporate defense firms in the world. I’m now a partner at a Delaware firm that does mainly plaintiff-side work for union and state pension funds, along with some defense work.
Senate Bill 21 is dangerous. The legislation provides a license for billionaires to use their control over public corporations to siphon value from those companies and public stockholders. The purpose of the amendments is to undermine our state’s crown jewel, our courts. The Court of Chancery’s core competency is policing transactions in which corporate insiders have interests that do not align with public investors, known as conflict or self-dealing transactions. Investors are comfortable investing in Delaware corporations because there is a cop on the beat. The bill is designed to make it easy to engage in unfair self-dealing, to prevent anyone from uncovering it, and to remove our courts from the equation. Ordinary people’s pensions and 401(k)s will suffer.
The bill’s proponents say it is necessary to prevent a mass exodus of Delaware corporations. But the current “evidence” of the exodus are complaints by a handful of billionaires largely aligned with Elon Musk, along with anecdotes told by their lawyers. After Musk lost a case a year ago (currently on appeal to the Delaware Supreme Court), he tweeted: “Never incorporate your company in the State of Delaware.” After Mark Zuckerberg attended the Presidential inauguration this year, Meta leaked to The Wall Street Journal that Zuckerberg was considering re-incorporating. Ask yourself: Why would Zuckerberg leak to the press something merely being considered at a confidential board meeting? Another billionaire, Bill Ackman, piled on: “Top law firms are recommending Nevada and Texas over Delaware.” He, too, has now clarified that he is simply considering it. Why would Ackman gratuitously tweet legal advice he had received about considering a state of incorporation? It all has the air of a coordinated setup. Talk the perception of a crisis into existence and then seize on that perception to do a legal smash-and-grab.
The unprecedented process used to draft the proposed amendments reflects its unbalanced and radical substance. For decades, amendments to Delaware’s corporation law—before this one—have followed a similar deliberative process. A group of lawyers called the Corporation Law Council spend months discussing, debating, and drafting proposed amendments, which then flow to the legislature. The process is far from perfect, but it provides some level of balance because there are a handful of lawyers on the Council who represent investors. This time around, a small cadre of corporate defense firms, including firms representing Tesla and Zuckerberg, drafted the bill in secret, without allowing any involvement by lawyers for investors. We have now heard the powerful corporate forces behind the bill made it clear to Council members that only cosmetic changes are allowed. They claim the legislature is already locked up, so resistance is futile. They’re wrong.
The bill will make Delaware corporate law largely irrelevant. If Delaware is the same as other states, why incorporate here? Law school corporation law textbooks are largely made up of Delaware case law, but leading law professors have already announced that they may be moving Delaware cases. The bill overturns dozens of Delaware Supreme Court cases and creates uncertainty about what cases remain good law. Last week, a student at a Columbia Law School event asked a renowned corporations professor if the amendments should affect their choice to move to Delaware to work here. The answer was yes. That should concern all of us because other states have things like oil and gas deposits, and we have corporate law.
The bill risks financial ruin for Delawareans—all to appease a handful of out-of-state billionaires. Jobs will be lost. Offers have already been rescinded. Openings have evaporated. And it’s not just lawyers. Office managers, paralegals, assistants, couriers, copy vendors, restaurant workers, caterers, drivers, and hotel workers will all be affected. The real estate and construction community will suffer, especially in downtown Wilmington, which is in the process of a revitalization decades in the making. Planned office expansions are on hold. Entire law offices may shutter. Leases will be broken. In other words, to stem a whisper campaign by billionaires and their lawyers about the speculative loss of unidentified corporations, Delawareans, Delaware pension funds, and Delaware pensioners will now suffer certain harm.
I ask you to call your legislators (302-744-4351) and request that they reject SB 21 in its current form.
Chris Foulds is a Delaware native who is a partner at Friedlander & Gorris, P.A.
