Delaware Corporate Overhaul Signed Into Law by Governor (1)

A major rewrite of Delaware’s best-in-class corporate law was signed by Gov. Matt Meyer (D) on Tuesday night, just hours after the bill cleared its final legislative hurdle.

Meyer made state Senate Bill 21 the centerpiece of his first two months in office. The measure, which divided Delaware’s legal community, passed by a 32-7 vote in the state’s House of Representatives earlier Tuesday evening, well exceeding the two-thirds support threshold required for corporate law changes.

The bipartisan legislation is designed to lower judge-made guardrails around insider deals, restrict shareholder access to the texts and emails of board members, and strengthen a presumption that they’re independent of management, controlling stockholders, and one another.

Meyer and the proposal’s other boosters have argued it will address the concerns of business leaders—led by Elon Musk—who a say a recent court crackdown on their conflicts of interest is driving them to other states. Delaware, corporate home to two-thirds of Fortune 500 companies, gets more than $2 billion a year—roughly 25% of its budget—from corporate franchise fees.

“Delaware is the best place in the world to incorporate your business, and Senate Bill 21 will help keep it that way, ensuring clarity and predictability, balancing the interests of stockholders and corporate boards,” Meyer said in a statement.

Scholars, shareholder attorneys, and institutional investors spent weeks slamming the “billionaire’s bill.” They called it an overreaction to “DExit” hype that undercuts Delaware’s elite judiciary and sends a dangerous message of appeasement after Musk responded to a $56 billion court loss with a year-long barrage of online attacks.

The measure’s supporters downplayed any link to the world’s wealthiest person, saying dealmakers and corporate planners have legitimate concerns about a legal swing toward minority investors that has made even routine transactions onerous and unpredictable. The Musk litigation, which concerns his 2018 pay package, is still on appeal in Delaware after he moved Tesla Inc. to Texas.

Failed Amendments

The fast-tracked legislation drew fire for bypassing a drafting process aimed at getting broad buy-in from across Delaware’s corporate community. An influential state bar subcommittee called the Corporation Law Council—overseen by the Corporation Law Section—typically writes statutory amendments in Delaware. But SB21 went to the bar committees only after a panel selected by Meyer penned the initial version.

The group included a scholar who has criticized recent legal precedents and three corporate defense attorneys—including two former judges—whose firms have defended Musk and Facebook founder Mark Zuckerberg.

Tuesday’s proceedings followed about a week after the emergence of public records showing Meta Platforms Inc. executives were in the backroom meetings that led to SB21, which could cut off several still-brewing shareholder lawsuits. The bill’s opponents have described its rollout as an ambush that gives “sore losers” a playbook for going around the courts. Supporters have emphasized the expertise of the drafting panel.

Three lawmakers unsuccessfully introduced a handful of amendments on the House floor Tuesday, including one supported by dozens of law professors that would leave corporate law largely intact while letting companies opt in to the bill’s greater dealmaker flexibility and reduced shareholder protections.

Rep. Sophie Phillips (D) brought in a witness to speak in favor of those amendments—New York University law professor Robert J. Jackson Jr., a former member of the Securities and Exchange Commission—but House Speaker Melissa Minor-Brown (D) repeatedly accused him of straying from the topic before shouting him down and ordering him to “excuse yourself.”

‘Dead Wrong’

The other amendments not to pass included one sponsored by Rep. Frank Burns (D)—who alluded to Meta’s involvement in the process—aimed at ensuring the legislation doesn’t operate retroactively. Rep. Madinah Wilson-Anton (D) proposed others that would have made insider texts and emails more accessible, weakened the presumption of director independence, and preserved elevated scrutiny of “extraordinary transactions.”

Passing SB21 as written would “cook the golden goose,” Wilson-Anton said, using a statewide nickname for Delaware’s premier role in the US corporate ecosystem. “I sincerely hope I am dead wrong.”

She called as a witness Jeff Mahoney, general counsel of the Council of Institutional Investors—a coalition of asset managers responsible for more than $5 trillion—to speak in favor of her proposals. The amendments don’t “go far enough, but we think they would be helpful,” said Mahoney, whose organization opposes SB21 in its current form.

Rep. Krista Griffith (D), a sponsor of the bill, referred to all the amendments as “unfriendly” and rejected Wilson-Anton’s request to have them reviewed by the Corporation Law Council. Griffith called retired Widener University law professor Lawrence Hamermesh, one of the bill’s drafters, to speak against them. Hamermesh previously testified in favor of the legislation before the House Judiciary Committee, the Senate Judiciary Committee, and the full state Senate. The exceptions built into the amendments would swallow the rule and defeat its purpose, he said.

The vote capped a frenetic month for SB21, which was introduced Feb. 17. The legislation passed the state Senate March 13. A few days earlier, the Delaware State Bar Association—in an unusual step—declined to join statements in support of the bill that it authorized on behalf of its corporate law committees.