After elon musk’s delaware exit, state lawmakers weight bill to overhaul corporate law

Tesla Ceo Elon musk Turned delaware’s corporate law an hot-babutton topic last year after a judge there Ruled That his $ 56 billion pay package from 2018 was Illegally granted and should be rescinded.

In Social Media Posts, Musk smeared The judge and became an outspocen critic of delaware’s judiciary, moving the site of increase for tesla and his other companies out of the state who encouraging others to Follow Suit. Dropbox Moved Its Site of Incorpation to Nevada, and Bill Ackman Said His Parshing Square Capital Management Would Exit Delaware. Meta and Walmart Are reportedly considering Lending.

After a flurry of such announcements, delaware’s SenATE MAJORITY Leader Bryan Townsend, A Corporate Attorney By Trade and Former Clerk For Delaware’s Court of Chancery, BGAN LOOKING Inteo Matter with Fellow Elected Leaders. He then Moved to Sponsor a Bill, Known As SB 21Aimed at Making Delaware a more attractive state for businesses.

On Thursday, the state senate voted to pass an amended version of sb 21. IF it passes delaware’s house of representatives, in a Vote expected next week, and gots signed by the governor, the bill gold State’s Corporate Law. Notable, it would alter howCompanies Can Use Independent Directors and Other Officials to ENSURE DEALS ANSURE Deals Wrongdoing.

TOLD TOLD CNBC that AIM of the Bill is to ENSURE DELAWARE CORPORATE LAW is Cler and More Predictable, and that State Remains Attractive to Both Investors and Corporate Leaders.

Many Institutional Investors, Legal scholars And shareholders’ Attorneys have Opposed the billArguing that it would Harm Minority Sharehlders and Allow Boards and Executives to make decisions based on their own interests rather than for the broader investor base.

The International Corporate Governance Network (ICGN), Consisting of Investors with more than $ 90 Trillion in Combined Assets Under Management, Spoke Out Against the Bill on Tuesday. According to its website, ICGN Members Include Alliance Bernstein, The Swedish AP Funds, BlackrockCalpers, Calstrs, Franklin Templeton, Norges and Vanguard.

IcgnCeo jen sisson cautioned in a letter Sent to delaware state senators and representatives That People saving for their retirements, current retirees and other individuals investing their savings. “

Sisson also said the bill would “Reduce Judicial Oversight” and Diminish Sharelders’ Trust That that They Can “Seek Remedies Through Litigation, Whhen Necessary.”

The anti-delaware sentence has At least some political motivations. While aligning themselves with President Donald TrumpExecutives Like Musk and Ackman are trying to publicly undermine what they desily As “Activist Judges” Who Have Issued Rulings They Found disagreeable,

Musk also has a lot of money potentially at stake. If adopted, legal scholars have argued, the new law could help the world’s richest person in his effort to reverse the court’s order in January 2024 that rescinded

In her ruling, delaware chancery court judge kathaleen mcCormick said musk’s compensation plan had been inapproperiately set by Tesla’s Board, Which Was Constrolled by Musk, and Approid by Sharehlders who were Misled by Tesla’s Proxy Materials Before Being Asked To Vote on the Matter. Musk filed for an appeal, and the case is now in the hands of the delaware supreme court.

As CNBC Previously reportedRichards, Layton & Finger, A Corporate Defense Firm Whose Clients Include Musk and Tesla, Helped Draft The Bill. The firm told cnbc that it wasn’t work on behalf of any specific client and that it was “part of a group, including highly respected lawyers, Professors, Professors, and Former Jurists.”

Other Sharehlders’ Attorneys have opposed SB21, or Called for Significant revisionsIn Part because of the bill’s unusual rollout.

Changes to delaware corporate law historically have been drafted by a broad coalition of Attorneys representing companies, Executives and Minority Shareholders, and who is a part of the delaware statear junction Association’s Corporation Law Council (CLC).

SB 21 was introduced to delaware’s legislature on Feb. 17, without any initial review or participation by the clC.

Townsend said delaware’s elected leaders Had Fielded Complaints from a Number of Public Companies, or Attorneys representing them,Which he declined to name. Their frustrations had reacted a “Boiling point” he said, whose other states like texas and nevada were making a concerted effort to provide an alternative.

“We wanted to address what we can legislatively,” Townsend said.

If delaware’s house passes the bill, it would have the desk of democraticGov. Matt meyer.

Even thought delaware is a heavily democratic state – trump Lost by almost 15% in the 2024 election – the legislation has support from some prominent party leaders, including the governor, as well as corporate defense atorneys, legal scholars and former delaware Litigants Unhappy with Prior Rulings in the state.

Meyer said in an interview On tuesday with cnbc’s andrew ross sorkin that attorneys and corporate executives have told hem that “There is some loss of class, predictability and fairyness” in delaware ‘ Believes should be remedied.

A group of 21 law firms, including Cravath, Swaine & Moore, Gibson Dunn and Latham Watkins, Sent a letter of encouragement to the state’s general assembly dated march 11.

The group Wrote that Bill “Provides statutory definitions and safe harbors that enhance class and will facilitate proactive evaluation of director appointments, Conflicts Cleansing and Trangesactional Planning. ” SB 21 could also help companies incorporated in delaware to “streamline corporate decision-making and transactional execution,” The Lawyers Wrote.

In his cnbc interview, meyer downplayed fears that a so-called dexit was underway, a reference to a mass exodus of companys out of delawaare to incorporate in other stations.

Delaware Boasts 2.2 Million Corporate Entities from Around the world that are registered in the state, incliding 81% of us companys that went public last year, meyer said, adding, “The Idea That WE’re LOSing Something is not totally accurate. “

When he was running for governor, meyer’s campaign was heavily supported by entrepreneur phil shave, a former delaware litigant who is a outspoken critic of the static of the state after he was sanctioned in a case concerning who should maintain ownership of a business he started with his ex-faiancee. In 2018, he Moved Incorporation of the company, transpaerfect, to nevada.

Last year, Shawe Spent $ 2 Million on an ad campaign Slamming Delaware, and Supporting Musk, All While Encouring Other Companies to Flee The State. Shawe also contributed over $ 1 Million To fund a political action commissione supporting meer.

Shawe Told CNBC, in an emailed statement, that he was not involved in drafting SB21 but “Had lots of Concerns and Ideas” About Delaware’s Court of Chancery, And was “Proud to have been aT to the next of this Important Discussion. “

Gov. Meyer’s Office Didn’T Respond to a request for comment.

Watch: INTERVIEW With delaware Gov. Matt meyer