Musk’s Threat to Exact Delaware Revenge Runs Risk of Backfiring

Elon Musk is coming for Delaware again.

The world’s richest man, now slated to serve as a government efficiency czar for Donald Trump, has set his sights back on the only state where he’s faced a reckoning for flouting the rule of law. After a year-long online campaign against America’s corporate capital, he said after the election that he’ll wield his clout with the president-elect in favor of “corrective action” against “egregiously wrong legal judgments in a single state.”

The tech titan is nursing a $56 billion grudge against the chief judge of Delaware’s elite business court, who voided his record compensation deal. As the judge weighs Musk‘s unprecedented request to restore the pay package based on a Tesla Inc. shareholder vote, his not-so-veiled threat to federalize corporate law—Delaware’s top cultural export—looks like it’s about extorting her, according to Tulane University law professor Ann Lipton.

With Trump’s Republican party in control of the White House and both chambers of Congress, Musk could get his revenge. But taking corporate law away from Delaware’s specialized judiciary and throwing it into the crucible of national politics—with the potential to whipsaw after every election—could backfire.

“This is kind of like a wish on a monkey’s paw,” Lipton said, alluding to the old horror fiction trope about an ironic curse. “I doubt very much he’s thinking that far ahead.”

Whether Trump and his allies in Congress follow through, lose interest, or focus on other priorities will be “an interesting test of how much influence Elon Musk has,” according to Oklahoma University law professor Megan Shaner. The initiative is easily constitutional under the commerce clause, and the federal securities laws already regulate corporate activity at the margins.

The business mogul is floating an idea that’s usually tied to progressive reform efforts aimed at making businesses more accountable. That’s almost certainly not what Musk wants, according to Lipton.

“I don’t think Elon Musk is particularly concerned with good governance,” she said. “He wants his $56 billion back.”

A Counterintuitive Push

Musk’s latest volley against Delaware comes after a lengthy crusade that raised alarms across the state’s tight-knit legal community, which revolves around the seven-judge Chancery Court.

His diatribes, blasted out to hundreds of millions of followers via his social media site, X, are turbocharging the perennial hand-wringing over a “race to the bottom” led by states leveraging looser liability rules to compete for corporate charters. The decision to move some of his companies to Nevada and others to Texas amplified those jitters.

Even against that backdrop, though—and even given his history of defying intellectual categories—Musk’s flirtation with federalizing corporate law is counterintuitive, according to Shaner. He doesn’t seem to realize he’s better served by the current system, which lets major employers gain sway with legislators by playing different jurisdictions off one another.

“He has a home state advantage,” she said. “He just couldn’t move the levers of federal law in the same way.”

The traditional case for federalization, advocated by Ralph Nader and Elizabeth Warren, involves imposing social and economic regulations: letting non-shareholders elect the board, giving employees a vote, and devising fiduciary duties toward outside stakeholders who could sue to enforce them.

Musk’s vision would probably turn those ideas on their head, according to University of Maryland law professor William Moon, who speculated about a “ruthless shareholder-centric version.”

The proposal is a solution in search of a problem, said Southern Methodist University law professor Carliss Chatman. She suggested the result would end up looking “just like the Delaware code.”

Delaware Dominance

The Delaware model is so dominant that lawmakers in Nevada—which markets itself as the anti-Delaware—had to effectively ban judges from looking to Delaware legal precedents for guidance. “These are experienced jurists who specialize in crafting the best corporate law for everyone,” Shaner said. “A federal judge doesn’t always have that experience. What other resource would they look to?”

The hundreds of federal judges—not to mention a dysfunctional Congress—would also make “a mess” in an area that benefits from the stability provided by seven expert judges accessible to every corporate constituency, said Lipton. That could drive companies offshore.

“Capital is mobile,” Moon said.

Kathaleen St. J. McCormick, the judge who struck down Musk’s pay package, acknowledged him indirectly at George Washington University last month. Angry billionaires are worth taking seriously because they’re an important part of the corporate ecosystem, the judge said Oct. 25.

This year, “perhaps the megaphones are louder,” but McCormick is too busy with her day job to get “overly stressed” about it, she said.

It’s hard to imagine Musk still believes he can influence McCormick after a year’s worth of antics that included thousands of letters to her from Tesla retail investors, according to Chatman, who said he’s more likely driven by simple spite. She also pointed to “classic agency capture” ideas.

“He probably thinks that he got Trump elected and whoever’s in charge of these new federal corporations is going to be one of his friends,” Chatman said.

He may be right about that, but turning corporations over to the federal government would put them at the mercy of the political winds, establishing the legal architecture for another administration to dramatically change course, according to Tulane’s Lipton.

Once corporate law is tossed in the “congressional meat-grinder,” his ability to dictate its direction would vanish, she said.