Why Should Delaware Care?
The rules that govern how the 2 million companies that call Delaware their legal home structure themselves impact the flow of money across the globe. Those rules could also impact business decisions in the future to locate in Delaware, which could impact the amount of money that flows to the state government’s budget.
A bill in Dover that could change the rules around who has ultimate control of some of the most powerful companies in the world has sparked an unprecedented controversy in little Delaware, featuring criticisms from judges, professors at prominent law schools, and from at least one state lawmaker.
Several of those critics are expected to testify during a legislative hearing Tuesday morning of the Delaware Senate Judiciary Committee.
The pushback marks the second year in a row that a bill written in secret by a group of corporate attorneys in the Delaware State Bar Association (DSBA) has sparked a public debate.
In previous years, such debates were nearly unheard of out of fear that public dissent could upset Delaware’s unique position as the leading legal domicile of big businesses across the globe – a role that brings to the state roughly a third of its government revenues each year.
Like last year, Rep. Madinah Wilson-Anton (D-Bear) has led the current pushback in the General Assembly, Delaware’s legislative body.
In May, she noted her dismay that she and her colleagues would have less than two months to publicly deliberate on the current bill after they return from a break on Tuesday.
The legislation, Senate Bill 313, would allow a Delaware company to strike a deal that could strip its board of directors of governance duties and turn them over to a single powerful stockholder, without a full vote of shareholders. It comes after such a deal was struck down by the state’s influential, judge-led business court, the Court of Chancery, in a case known as Moelis.
Proponents, such as the bill’s sponsor State Sen. Bryan Townsend, argue that the legislation is needed because those kinds of deals are already employed across global business.
Townsend, a Newark Democrat, said that recent Delaware court rulings outlawing such stockholder deals have caused existing ones to be placed “on hold, and people are concerned about how to clarify the path forward.”
Townsend also asserted that his fellow lawmakers have sufficient time to consider his bill, which he said has been widely discussed by corporate law experts.
“Delawareans are helped when a pillar of our state’s economy – Delaware corporate law – is responsive and flexible, which is what attracts so many companies to incorporate in Delaware,” said Townsend, who is also a corporate law attorney at the big Wilmington firm Morris James and argues before the Court of Chancery.
In a May 24 thread on X, formerly known as Twitter, Wilson-Anton called Townsend’s approach “historic overreach,” noting that his bill responds to a court decision that has yet to be addressed by the Delaware Supreme Court.
“Need I remind anyone that the members of the DSBA who drafted this bill are not elected officials? They volunteer their time to weigh in on these issues, yes, but they are also paid attorneys who often are employed by the very private equity firms this bill would benefit,” Wilson-Anton wrote.
The chairman of the Corporation Law Section of the DSBA did not respond to a request for comment.
“These would be the most consequential changes to Delaware corporate law of the 21st century, and they should not be made hastily — if at all.”
50 leading corporate law professors
Public dissent to Townsend’s bill continued to simmer in recent weeks before erupting Friday when more than 50 legal experts from Yale, Harvard, Columbia, and other universities signed an open letter to Delaware lawmakers, urging them to vote no on the measure, which they called a “hasty legislative action” that “would allow corporate boards to unilaterally contract away their powers without any shareholder input.”
“These would be the most consequential changes to Delaware corporate law of the 21st century, and they should not be made hastily — if at all,” the letter stated.
In response to the letter, Vice Chancellor Travis Laster – a judge in Delaware’s Court of Chancery – said in a LinkedIn post Saturday that he had “never seen so many corporate law professors agree on anything. Wow!”
Laster himself has similarly questioned the wisdom of the bill, calling it a “major surgery” to Delaware corporate law.
“Smart people, acting in good faith, can disagree about whether that is a good thing. What should be indisputable is the magnitude of the change,” Laster said in an Op-Ed posted on LinkedIn.
In his email, Townsend said he does not agree with Laster’s characterization of his bill as a “major surgery.”
Chancellor Kathaleen McCormick, one of the most influential corporate law judges in the world, has expressed concerns about the legislative proposal. | SPOTLIGHT DELAWARE PHOTO BY JACOB OWENS
Laster’s comments follow a letter that his colleague, Chancellor Kathaleen McCormick, sent last month to the Delaware State Bar Association urging caution with making
In the letter, McCormick – who has famously sparred with tech billionaire Elon Musk in her court and recently negated his $56 billion pay package – called the legislation a controversial and rushed reaction that “preempts the Delaware Supreme Court’s opportunity to act as the final arbiter of Delaware law.”
“To be clear, I do not impute ill motives to the [Corporate Law] Council. They are all volunteers trying to do the right thing for Delaware. I do, however, think that the process that they have employed is flawed and that more time would facilitate greater deliberation and, no doubt, a better product. Slowing down his process would allow for people to study (or at least read!) the lengthy Proposal and potentially propose alternative solutions,” she wrote in the letter.
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