Previously, I blogged about whether the proposed legislation is good or bad, including whether it’s good or bad for Delaware.
What I neglected to mention is that it is unequivocally bad for Delaware when normal people start to pay attention to Delaware’s fights.
Why Are Delaware Democrats Trying to Give Elon Musk $55 Billion?
For over a century now, Delaware has been the home of most large American corporations. The state government has set up an incredibly corporate-friendly regulatory, tax, and legal regime, and so big companies locate their official headquarters there. Many trusts and on-paper shell corporations are Delaware-based as well, for the same reasons. It’s a classic race-to-the-bottom dynamic where, because the federal government does not set a consistent baseline, states competed as to who could pander the hardest to big business, and Delaware hit bottom first. Most Fortune 500 companies locate there, and in return the state gets about a third of its budget from corporate franchise fees and taxes.
But Delaware’s incorporation laws also provide some rights to shareholders. While shareholders have extremely limited ability to sue over the business judgment of corporate managers, corporations must prioritize them and treat them fairly. Due to these precedents, Elon Musk has been losing repeatedly in Delaware Chancery Court over a proposed pay package for himself worth an estimated $55 billion. Musk responded by moving Tesla’s headquarters from Delaware to Texas to try to get his cash.
As a result, legislators from both parties, in short, panicked. As CNBC reported, Musk’s own lawyers drew up a sweeping reform to state law that would weaken protections and powers for small investors and almost certainly let things like Musk’s big pay package through.
Delaware is a tiny state with 0.2% of the American population, yet it has an enormous role in regulating our economy. It is bad for Delaware when the other 99.98% start asking why they don’t get a say.