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Introduction to Delaware’s Corporate Laws

The state of Delaware has long been a haven for American corporations due to its lenient business laws. However, it appears that this leniency is not enough for the world’s richest man, who has introduced legislation that would significantly alter the state’s laws to empower corporations even further. Critics argue that this legislation would allow companies to engage in massive misconduct and leave shareholders with limited avenues for retaliation. Moreover, it seems that the Democrat-controlled legislature in Delaware is willing to pass the bill.

The Proposed Legislation

The bill in question was drafted by Richards, Layton & Finger (RLF), a law firm that represents the interests of the world’s richest man. According to CNBC, if the bill passes, it would "pave the way" for the reinstatement of a $55 billion Tesla compensation package that has been the subject of a lengthy judicial battle. The billionaire has been seeking this payout for several years, but a Delaware judge, Kathaleen McCormick, has repeatedly blocked his attempts, citing flaws in the approval process and the enormous sum involved.

Consequences of the Legislation

The new legislation would shift the law in a way that could potentially render the judge’s case against the billionaire’s compensation package moot. However, the law would have far-reaching consequences beyond just the billionaire’s payout. Critics argue that it would fundamentally rewrite Delaware’s corporate laws, altering the balance of power between corporate fiduciaries and shareholders. This would allow companies to increase corporate secrecy and make it nearly impossible for shareholders to file lawsuits against them for corporate misbehavior.

Impact on Shareholders

RLF claims that its role in drafting the legislation was not done on behalf of a specific client. However, critics argue that the bill would revoke disclosure requirements for shareholder requests for company documents, records, and internal communications. As The Lever notes, this would make it almost impossible for shareholders to build viable lawsuits against companies. The bill would only provide plaintiffs with minutes from board meetings, which reveal very little.

Corporate Pressure and Potential Consequences

The billionaire is not the only powerful figure pushing for the bill’s passage. Other influential individuals, including MAGA, Meta CEO Mark Zuckerberg, and Trump supporter Bill Ackman, have threatened to pull their companies out of Delaware if the state government does not cater to their interests. Walmart has also threatened to leave the state. This could have significant consequences for Delaware’s state budget, which relies heavily on corporate fees. As a result, the Democrat-controlled government appears to be willing to support this corporate-led assault on the state’s legal infrastructure.

Opposition to the Bill

A letter sent by public pension fund groups to the governor of Delaware and the Delaware General Assembly has urged the government not to pass the bill. These groups, which represent retirement systems for many unions and public sector employees, are aware of the significant impact this policy change could have on their investments. They argue that the proposed legislation would destroy the balance between protecting public stockholders and allowing directors and officers to manage companies. The letter notes that the proposed legislation was drafted by lawyers representing billionaire controlling stockholders who have been found to have breached their fiduciary duties.

Conclusion

Shareholder attorney Mark Richardson has stated that what these companies want is for there to be no possibility for a shareholder or a court to review their conduct. He believes that catering to these extreme views to please a few corporations would be a terrible mistake for Delaware, ultimately destroying the state’s franchise in the long run. The fate of the bill remains to be seen, but its potential consequences for corporate governance and shareholder rights are significant.