By Tom Hals
WILMINGTON, DEL. (Reuters) – Delaware lawmakers are scheduled to vote on Tuesday to overhaul the state’s corporate law to keep powerful business leaders like Mark Zuckerberg from moving their companies’ legal home to another state, although opponents call it a giveaway to billionaires.
The law, known as SB 21, is on the agenda for the Delaware House session that begins at 2 p.m. ET (1800 GMT) on Tuesday, where it must receive approval from two-thirds of the chamber’s members.
The bill has already been approved by the Delaware Senate and Governor Matt Meyer said he will sign it.
The bill mostly impacts companies with a controlling shareholder, like Meta Platforms, which is controlled by Zuckerberg. The proposal provides steps for arranging deals between a company and its controlling shareholder, such as selling corporate assets to the controller, that cannot be challenged in court by the company’s other investors. It also applies to deals between the company and board members and executives.
Leaders of both parties sponsored the bill in the hopes of preventing “DExit” — or a stampede of companies moving their legal home out of one of the country’s smallest and least populated states. While other states are trying to attract corporations, Delaware still remains home to most large public companies in part because its corporate law protects board directors from being sued if they are independent and act in the company’s best interest. Fees from chartering businesses generate more than 20% of Delaware’s budget revenue.
Several companies, mostly with controlling shareholders, have said they might or will leave Delaware, including Dropbox, Meta Platforms, Tripadvisor and President Donald Trump’s media company. On Friday, Simon Property Group, which is not a controlled company, asked its shareholders to approve moving the real estate investment trust’s legal home to Indiana, where it has its headquarters, from Delaware. REITs like Simon tend to be chartered outside of Delaware.
The proposed legislation has been labeled the “the billionaire’s bill” by critics, which include attorneys for shareholders and managers of pension funds. The annual process to amend Delaware’s corporate law rarely attracts attention but this year has been marked by high-profile opposition ads showing Elon Musk waving a chainsaw.
The International Corporate Governance Network, which says its members manage more than $90 trillion in assets, warned lawmakers in a letter earlier this month the bill could have “significant negative implications for long-term returns for investors, including people saving for their retirements.”
Delaware Representative Madinah Wilson-Anton, a member of the majority Democratic Party, told the Breaking Points podcast on Friday that her “email inbox is unusable because I’ve gotten so many emails from constituents that are telling me to vote no.”
The bill prevents shareholders from challenging deals that are approved by a board committee that has a majority of independent directors or by a vote by public shareholders. The bill also limits records available to shareholders who want to investigate a deal for conflicts.
Corporate leaders have expressed frustration in recent years over court rulings that upset certain expectations about the state’s law. Tech billionaire Elon Musk fueled the debate last year by urging companies to follow Tesla and leave the state after a Delaware judge rescinded his $56 billion pay package as CEO of the electric car maker.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Alexandra Hudson)
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