Delaware lawmakers put aside protests from major investors and approved fast-tracked legislation Tuesday night that backers say will protect its status as the corporate capital of the world after criticism by billionaire Elon Musk and other influential business titans rattled public officials.
The bill is headed to Gov. Matt Meyer, a Democrat who met with corporate leaders about their concerns about precedent-setting court decisions governing corporate conflicts of interest and urged lawmakers to quickly pass changes to the law.
They did, sending the bill through both chambers within two weeks of its introduction, despite shareholders’ lawyers, consumer groups and pension funds slamming it as a giveaway to billionaires and corporate insiders. The House approved it Tuesday night, 32-7, after a unanimous Senate earlier in March.
Delaware’s experienced corporate law courts and their well-developed body of corporate case law have become the go-to destination to settle all sorts of business disputes as the legal home of more than 2 million corporate entities, including two-thirds of Fortune 500 companies.
The state also reaps billions of dollars from the activity, making lawmakers nervous that corporations could flee Delaware and undercut a major source of revenue that funds one-third of Delaware’s operating budget.
After two hours of debate Tuesday, Rep. Krista Griffith told colleagues that the bill was complex, but the reasons for voting for it were simple: “Protect Delaware’s economy, protect future opportunities for the people in our state. We have the best business court in the nation.”
However, an opponent, Rep. Madinah Wilson-Anton — referring to the business courts as Delaware’s “golden goose” — warned that the changes being passed could end up “cooking that golden goose.”
A legal challenge is widely expected after Meyer signs the bill.
In hearings, lawmakers were warned by corporate lawyers and state officials that businesses were contemplating moving their legal home — a “Dexit,” as it has been dubbed — and that startups are being advised to incorporate elsewhere, such as competitors Nevada or Texas.
Corporate leaders complained about a lack of predictability, clarity and fairness, lawmakers were told.
Last year, Musk slammed Delaware, saying “Never incorporate your company in the state of Delaware” and instead recommended Nevada or Texas as destinations after a Delaware judge invalidated his landmark compensation package from Tesla worth potentially more than $55 billion.
Musk and Tesla are appealing in the state Supreme Court, and Musk’s companies — Tesla, SpaceX and Neuralink — all departed Delaware for Nevada or Texas.
