Del. Makes Big Bet on New Law Blunting Companies' Exodus

Delaware's Democrat governor is putting a lot of stock in a new law he signed last month that he believes will help stem the exodus of many top companies looking to leave the state for better alternatives, The Wall Street Journal reported.

Gov. Matt Meyer signed state bill SB21 on March 25, touting it as an initiative to "protect state revenue" amid a host of companies — Tesla, Meta, Dropbox, Walmart, Roblox, AMC, and Madison Square Garden Entertainment among them — leaving Delaware or considering a move to states that would do more to protect them from shareholder lawsuits.

Nearly a third of Delaware's income in 2024 was in corporation revenue, its second-highest source of revenue behind income tax (36%).

"It's a huge industry for Delaware. So the bigger the company leaves and if that creates a wave, more companies leaving, that can be an existential crisis for them," Wall Street Journal legal affairs reporter Erin Mulvaney said in the report.

At issue for Tesla's Elon Musk, CEOs of other Fortune 500 companies, and entrepreneurs across the nation is that the Delaware Court of Chancery has become a haven for shareholder lawsuits and left-leaning judicial activism, they say.

In Musk's case, Chancellor Kathaleen McCormick, a Democrat, nullified a $56 billion compensation package for him despite being approved by Tesla shareholders twice — and based on Musk hitting benchmarks which saw the company's value zoom over $1 trillion.

In an interview with the Journal, Meyer touted Delaware's courts as a "bedrock of business operations in the country that people know when writing a contract, that it's governed by Delaware law."

But he also defended SB21, telling the Journal that companies asked the state to "create safe harbors."

Therein lies the rub for critics of the bill, saying that Meyer and the legislature upended that bedrock of predictability and stability in the courts.

"The state law changes the corporate code. That would basically limit the ability of shareholders to bring lawsuits in various ways. The irony is that the courts, the expertise of judges, that's why Delaware was an attractive place. So I think the critics say if you can just overturn it with a piece of legislation, is there even that stability and predictability, and why aren't we relying on the expertise of judges and our corporate code?" Mulvaney said.

Still, Meyer said Delaware is still a safer bet than places like Texas or Nevada, destinations of some companies leaving The First State.

"If you wanna go to Vegas and roll the dice, go to Vegas and roll the dice. Most corporate leaders I know aren't really interested in doing that with their life savings or the business," Meyer told the Journal.

He added, "At a time when costs are rising so much across our country, Delaware has among the lowest property taxes in the region, we have no sales tax and there are other ways we're able to make Delaware affordable, in part because we have this amazing court system and this amazing corporate franchise."