- More than two-thirds of the Fortune 500 is incorporated in Delaware, but Tesla CEO Elon Musk’s criticism of the state’s courts has coincided with other major companies leaving the state. A law firm that represented Tesla during Elon Musk’s pay challenge has helped draft a bill that proponents say will prevent such an exodus, but critics allege the bill’s expedited development lacks transparency.
Tesla CEO Elon Musk believes the legal system in Delaware has prevented him from getting a fair payday, despite the state’s reputation as the premier locale for incorporation owing to its specialized business court, expert judges, and well-honed case law. In fact, about half of Russell 3000 companies have exclusive-forum bylaw provisions in place that explicitly require legal disputes involving the company to be litigated in Delaware rather than in a less-sophisticated and more hostile legal venue in another state.
But the court’s opinion on Musk’s moonshot pay package and his subsequent complaints about the state’s jurisprudence have caught the attention of some lawmakers and legal experts. Musk brutally criticized a state judge who twice struck down his compensation package, now valued at nearly $100 billion.
The electric-vehicle maker has since reincorporated in Texas, but Musk’s complaints directed a spotlight squarely at the Court of Chancery as well as the state’s primary corporate statute, the Delaware General Corporation Law. Now, a law firm that represents both Musk and Tesla has helped draft a proposed amendment to state law as Delaware lawmakers race to persuade other major companies to stay put.
Roughly two-thirds of the Fortune 500 is incorporated in Delaware—the mecca of U.S. corporate law for more than a century—which generates billions in revenue for the state and has created a thriving legal industry that helps sustain the local economy. Tesla’s departure, however, has led to fears about Musk sparking a wider corporate exodus. Bill Ackman recently said his activist hedge fund, Pershing Square, would reincorporate in either Texas or Nevada, two states trying to entice companies to relocate. Mark Zuckerberg’s Meta is reportedly mulling a move to the Lone Star State, while companies like Dropbox and Tripadvisor are heading to Nevada.
This month, Delaware Gov. Matt Meyer told Fortune in an interview that changes aimed at ensuring the state remains corporate America’s go-to legal forum could be expected in the coming weeks and months. The former proved to be correct on Monday, when Delaware legislators introduced a bipartisan bill that would make several statutes more friendly to executives who are also controlling shareholders—like Musk, Zuckerberg, and Ackman.
“My sense and the governor’s sense was that Delaware needed to do something very promptly,” said Lawrence Hamermesh, professor emeritus at Delaware Law School and one of the primary authors of the bill.
Hamermesh developed the proposed changes with two of the state’s most prominent former jurists: William Chandler, who formerly headed the state’s Court of Chancery, the nation’s leading court for handling corporate disputes. And Leo Strine, who also served as chancellor of the court before his tenure as chief justice of the Delaware Supreme Court. State Sen. Bryan Townsend, the bill’s primary sponsor, said John Mark Zeberkiewicz, a director at law firm Richards, Layton & Finger, also took part as the group’s “scrivener,” tasked with drafting the group’s work.
The firm, which served as counsel for Tesla during the pay package dispute, said its involvement was not on behalf of any specific client.
“As many have recognized, statutory changes are necessary to restore the core principles that have been the hallmark of Delaware for over a century and ensure that Delaware remains the preeminent jurisdiction for incorporation,” Lisa Schmidt, the firm’s president, said in a statement.
Tesla did not respond to a request for comment.
Townsend, a Democrat and the state senate’s majority leader, said the concerns addressed in the bill were not sparked by Musk’s departure, even though he understands why people would connect the dots.
“We’re not here to court him back,” Townsend said of the world’s richest man.
He and Hamermesh emphasized the new bill, titled Senate Bill 21, is not retroactive, meaning it can’t overturn the decisions rescinding Musk’s pay package. It’s hard to establish that awarding executive compensation worth roughly $95 billion—the current value of the proposed package, based on Tesla’s current share price around the $355 mark—is economically fair, Hamermesh said.
“I do resent efforts to suggest that this is all a sop to Republicans and Elon Musk,” Hamermesh said of the bill, “because this ought to be supported, I think, by Democrats like me and Republicans alike.”
Delaware lawmakers rush to prevent corporate exodus
Critics, however, say the process has lacked transparency. Typically, changes to Delaware corporate statutes are drafted, debated, and reviewed by the state bar’s corporation law council before they are presented to legislators.
Senate Bill 21, meanwhile, was authored by a small group of individuals largely unified in their viewpoints, said Charles Elson, founding director of the University of Delaware’s Weinberg Center for Corporate Governance. He thinks the bill could weaken Delaware’s hold on U.S. corporate law if institutional shareholders and other investors decide the state’s safeguards for minority stockholders—like those who sued Musk—are now insufficient. More important, he thinks the bill greatly undermines the credibility of the state’s courts.
“You’re basically saying our courts are no good,” he said of the bill. “That’s why we’re overruling them.”
Backers of the bill, however, insist time is of the essence to make changes. Hamermesh noted that companies are currently writing their proxy statements to prepare for shareholder meetings in April, May, and June when potential stockholder votes to reincorporate could take place. Townsend said interviews with frustrated business leaders indicated more companies would leave if Delaware didn’t act fast.
“An unprecedented exigent risk required an unprecedented expedited process,” he said.
Introducing the bill a few weeks before the next legislative session, he added, gives time for the corporation law council to react.
“As with all legislation, this bill will go through the complete legislative process, and the governor has asked the [corporation law council] to review it expeditiously,” Mila Myles, a spokesperson for Meyer, said in a statement. “He looks forward to a final product that reflects the needs of a broad spectrum of stakeholders.”
Michael Houghton, a former president of the state bar, said elements of Delaware’s corporate law require prompt revision. Nonetheless, the bill’s rapid development was unusual, he said.
“That does not mean that it is necessarily flawed,” said Houghton, who is currently of counsel to Morris Nichols Arsht & Tunnell and chairs a council that advises the governor on Delaware’s finances.
Musk and others attack Delaware judges
What Houghton does find abhorrent, however, are the personal attacks Musk and others have launched against Chancellor Kathaleen McCormick, who rescinded the Tesla CEO’s pay package. While lawmakers may claim Musk has not influenced the bill, he has certainly turned up the heat on the Court of Chancery, which is typically characterized as exceedingly apolitical and technocratic.
Phil Shawe, the CEO of translation company TransPerfect, has spent millions on ads bashing Delaware courts after a bruising legal battle with his former fiancée, who cofounded the company with him. Shawe confirmed that campaign finance records show he separately funded a $1.25 million political action committee during Meyer’s 2024 gubernatorial campaign. Shawe said that money was mostly dedicated to criticizing Meyer’s main primary opponent, then–lieutenant governor Bethany Hall-Long.
“Any time spent pushing for reform in the Delaware Chancery Court is time well spent,” Shawe said in a statement.
Townsend, reiterating that Senate Bill 21 will not help either Musk or Shawe, said the attacks on McCormick and her predecessor have been unacceptable.
“Our courts are rightfully heralded for their work,” he said.
He hopes the new bill will give businesses even more reason to stick around.
Correction: This story was updated to reflect that Phil Shawe had a legal battle with his former fiancée.
