A piece of legislation that was written by the law firm representing Elon Musk has been passed by the state of Delaware’s Democrat-controlled legislature. Critics maintain that the bill, which now only needs to be signed into law by the governor, will fundamentally alter the structure of corporate law in the U.S., allowing corporations to potentially engage in malfeasance while leaving little room for legal retaliation by consumers or company shareholders.
SB 21 was originally drafted by Richards, Layton & Finger (RLF), a law firm that counts Musk as one of its clients. The contentious legislation, which would re-write corporate regulation in the state, has been a deep source of concern by worker and consumer groups, as critics maintain it will free corporate America up to behave badly and suffer less consequences. Now, Bloomberg reports that the bill was passed Tuesday night, thanks to the help of a large, pro-corporate lobbying effort. The outlet writes:
A team of five lobbyists hired by the American Investment Council, which is funded by the likes of Blackstone Inc. and KKR & Co., had pressed lawmakers to support the measure. The “billionaires’ bill,” as some detractors called it, eased the standards for insider deals involving controlling shareholders and for rich compensation packages for founders like Musk. An army of professional influencers had been “swarming the statehouse,” as one legislator put it.
The drama behind the bill’s passage runs deep. For a very long time, Delaware has been home to a majority of American corporations due to its lenient business laws. Recently, the state’s status as the corporate capital of the country was threatened by pressures—from Musk, but also by other major companies and business personalities—to encourage businesses to leave the state. It appears that, in an effort to stop companies from fleeing, the state legislature has acquiesced to businesses’ priorities.
According to critics, SB 21 would fundamentally rewrite the norms of corporate law in the U.S., and would fundamentally alter the balance of power between corporate fiduciaries and shareholders—allowing companies to increase corporate secrecy immensely while making it nearly impossible for shareholders to file lawsuits against them over corporate misbehavior. Of the bill’s ability to rewrite current protections for shareholders, The Lever previously reported:
The bill would revoke disclosure requirements for shareholder requests for all kinds of company documents, records, and internal communications. All plaintiffs would be entitled to would be minutes from board meetings, which reveal very little. These alterations would make it almost impossible for shareholders to build any viable lawsuits that could even reach the discovery fact-finding stage of a court case.
In other words: corporate secrecy is likely to increase, and the ability of shareholders to hold large corporate institutions accountable will shrink.
A key reason that Democrats are thought to have caved to the lobbying campaign around the bill is their fear of a revenue drain. A very large amount of Delaware’s state budget comes from corporate fees, and an exodus of businesses could possibly crater one of its largest sources of public funding.
Musk very publicly pulled his businesses out of the state in favor of Texas, and encouraged other companies and businesspeople to do the same. Musk appears to have soured on the state as a result of an ongoing legal case. Delaware judge Kathaleen McCormick has repeatedly thwarted Musk’s attempts to secure his massive corporate pay package from Tesla, which was challenged by a company shareholder in court. McCormick has instead sided with the shareholder, claiming that the process that led to the approval of the pay package was deeply flawed and that the compensation represents “an unfathomable sum.” Now, some speculate that the new law could pave the way for Musk to receive his money, as the legal changes may render McCormick’s current legal argument moot.
