In Key State of Delaware, 'Corporate Insider Power Grab' Quietly Underway

The push to pass Senate Bill 21 in Delaware, the "corporate capital of the world," is garnering criticism from some anti-monopoly, economic, and legal experts this week.

"Delaware's Senate just chose billionaire insiders—like Elon Musk and Mark Zuckerberg—over pension funds, retirement savers, and other investors by passing S.B. 21," Laurel Kilgour, research manager at the American Economic Liberties Project (AELP), said in a Monday statement about state senators' overwhelming support for the "corporate insider power grab" last week.

Delaware lawmakers are swiftly working to overhaul state law after a judge ruled against Musk's $56 billion 2018 compensation package for Tesla. The CEO—who is the world's richest person and now a key leader in President Donald Trump's administration—then moved the incorporation for his other companies elsewhere, and urged other businesses to follow suit. Some are doing so and others are reportedly considering it, including Zuckerberg's Meta, the parent company of Facebook and Instagram.

As Business Insiderreported last month, citing Delaware's Division of Corporations, nearly 2.2 million entities are registered in the tiny state, including two-thirds of all Fortune 500 companies.

"This bill only serves to make it easier for corporate boards to rubber-stamp excessive executive pay and self-serving deals that drain returns from pensioners and retirement accounts," warned Kilgour. "Coming on the heels of another panicked giveaway to the corporate defense bar just last year, this is a reckless move that will undermine investor confidence and further erode Delaware's credibility as a fair corporate forum. The Delaware House must step in and stop this dangerous bill before it's too late."

Specifically, as AELP laid out, "S.B. 21 jeopardizes the ability of investors to protect themselves from harmful board decisions that slash returns to investors' hard-earned retirement savings, such as awarding exorbitant executive pay packages that far exceed any rational benchmark, or overpaying to acquire companies in which controlling shareholders have financial stakes."

"The bill makes it easier for corporate boards to insulate directors and controlling shareholders from litigation over conflicts of interest and self-dealing by corporate insiders, narrows who qualifies as a controlling shareholder, imposes a new presumption that board members are independent no matter who they are appointed by, and makes it more difficult for shareholders to discover conflicts by restricting their access to internal corporate records," the nonprofit detailed.

Joseph R. Mason, a Ph.D. economist and fellow at the University of Pennsylvania's Wharton School of Business, also sounded the alarm on S.B. 21 with a Monday opinion piece in the Delaware Business Times.

"I recently conducted an economic impact study on the likely effects of Senate Bill 21 (S.B. 21) on the Delaware economy. Based on my findings, a reasonable estimate of the annual economic activity lost due to S.B. 21's passage is $117 million-$235 million in decreased economic activity and 450-900 lost jobs, statewide," he wrote. "My analysis very likely understates the impact to Delaware, as it only estimates lost economic activity generated by law firms located in the state."

Mason's op-ed followed a Delaware Onlinepiece from attorney Greg Varallo, who is head of Bernstein Litowitz Berger & Grossmann's Delaware office and represented Richard Tornetta, the Tesla shareholder behind the Musk case in the state.

"On March 5, this paper published an op-ed by William Chandler and Lawrence Hamermesh," Varallo pointed out last week, referring to a former chancellor on the Delaware Court of Chancery who is now a partner at Wilson Sonsini Goodrich & Rosati, and a professor emeritus at the Widener University Delaware School of Law.

"In the piece, my old friends extolled the virtues of S.B. 21, going so far as to argue that the bill restored balance to the corporate law playing field. Nonsense. S.B. 21 is a license to steal for corporate controllers like Elon Musk," argued the lawyer, who spent decades leading a defense-side firm.

According to Varallo: "The idea that S.B. 21 will restore 'balance' between the interests of regular investors and billionaires who control companies is demonstrably false S.B. 21 creates 'safe harbors' for controllers to steal from their controlled public companies and from the stockholders who invested in those companies without having to answer for doing so. The bill overturns decades of thoughtfully crafted common law and puts Delaware in direct competition with Nevada for the state which gives controllers the clearest and easiest to follow road map to commit grand larceny."

"This isn't someone else's problem. If your retirement includes index funds, as most do, you are a stockholder in controlled companies because no index fund operates without owning controlled companies," he added. "As a citizen who believes that the independence of our judiciary is at the very core of our form of government, I can't sit still while the proponents of this legislation continue to attack the public servants who serve on the Court of Chancery, the nation's leading business court."

Meanwhile, as the Delaware Business Timesnoted Monday, S.B. 21 is backed by "two of the most powerful Delaware business organizations, the Delaware State Chamber of Commerce and the Delaware Business Roundtable," and groups that testified in support of it include ChristianaCare, the Central Delaware Chamber of Commerce, and the Home Builders Association of Delaware.

Despite expert warnings, Delaware lawmakers are continuing their efforts to send S.B. 21 to the desk of Democratic Gov. Matt Meyer, who last week called on them to pass the legislation "as quickly as possible." According to the Delaware General Assembly website, the state House introduced an amendment to the bill on Tuesday.