Delaware lawmakers are set to hold hearings tomorrow on a bill that could impact corporate America, with major corporate law firms voicing their support for it. On Tuesday, 21 law firms, including Simpson Thacher and Bartlett; Cravath, Swaine & Moore; and Paul, Weiss, Rifkind, Wharton & Garrison, will publish a letter endorsing legislation that would override decisions made by the Delaware Court of Chancery, prompting backlash and potential corporate relocations. Meta, for example, is considering moving its incorporation outside of Delaware due to these rulings.
The bill is seen as crucial in maintaining Delaware’s appeal as the jurisdiction of choice for sophisticated clients when forming companies, as stated by the supporting law firms.
Delaware has been embroiled in controversy following various rulings, including Chancellor Kathaleen McCormick’s decision to nullify Elon Musk’s large payout at Tesla last year. While Musk’s reaction drew attention to the chancery court, many corporate lawyers are more generally discontent with the court’s treatment of companies with controlling shareholders, believing it to be overly supportive of noncontrolling shareholders.
Given the significant contribution of corporate entities to Delaware’s budget, a group of state senators proposed a bill last month to amend the state constitution, which would effectively challenge years of case law by the Delaware Court of Chancery. The bill was fast-tracked, bypassing the usual process, but critics argue that it lacked early input from key members of the Delaware legal community.
At the Tulane University Corporate Law Institute conference, Ned Weinberger of Labaton Keller Sucharow expressed concerns about disempowering Delaware courts and weakening the voice of minority shareholders. Paul, Weiss partner Scott Barshay emphasized the importance of passing the bill to prevent a corporate exodus from Delaware.
The letter of support emerged from discussions at the conference, highlighting that while the legislative intervention in Delaware is unusual, it is not unprecedented in response to corporate concerns.
The lawyers contend that Delaware has a history of adapting its legal approach to modernize and respond to market changes.
Additional law firms supporting the bill include Kirkland & Ellis; Latham & Watkins; and Weil, Gotshal & Manges.
Interestingly, Wachtell, Lipton, Rosen & Katz did not sign the letter, despite Leo Strine Jr., a former chancellor of the Court of Chancery, being associated with the firm. Nevertheless, Martin Lipton, one of the firm’s founders, expressed support for the bill after its release.
During the conference, concerns were raised about the unpredictability in Delaware courts, with companies increasingly worried about it. David Katz of Wachtell mentioned that the bill’s significance was not related to Elon Musk’s criticism of Delaware, a common viewpoint.