Delaware lawmakers are expected to vote as soon as next week to overhaul the state’s corporate law to protect its business-friendly reputation, but opponents have called the bill a giveaway to billionaires.
The bill makes it hard for investors to sue over certain transactions involving controlling shareholders, such as buying a controlling shareholder’s business, if the deal follows certain steps. It also applies to deals with board members and executives, but will not impact existing rules for a takeover of the company by the controlling shareholder.
The proposed legislation has politicized the normally sleepy annual process of tweaking the state’s corporate code. Attorneys who represent shareholders have dubbed it “the billionaire’s bill” and have launched a public campaign against it.
Opponents had expected a vote on Thursday, although the leadership of Delaware’s House of Representatives had not committed to a schedule. A spokesperson for the House Democrats, who control the chamber, said a vote is now likely on Tuesday but could change, and sources said both sides were trying to line up support. Two-thirds of House members must approve the bill for it to pass. Delaware’s Senate approved the bill last week and Governor Matt Meyer has said he will sign it.
The bill, known as SB 21, is being considered amid concerns of a “DExit” stampede by companies from one of the country’s smallest and least populated states. While other states are trying to attract incorporations, Delaware still remains home to most large public companies and related fees generate 20% of its budget revenue.
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Several companies, mostly with controlling shareholders, have said they might or will leave Delaware, including Dropbox DBX.O, Meta PlatformsMETA.O, TripadvisorTRIP.O and President Donald Trump’s media company.
Amy Simmerman, a corporate lawyer in Wilmington, told the Delaware House Judiciary Committee, which approved the bill on Wednesday, that she has 15 significant corporate clients that were considering leaving the state. “This is serious,” said Simmerman, who declined to identify the clients. “I don’t think it’s just bluffing.”
‘THIS IS APPALLING’
Under the proposed bill, if a deal is approved by a board committee that has a majority of independent directors or by a vote by public shareholders, investors cannot challenge it in court. Currently, litigation can only be avoided if both steps are used and the committee must be entirely made up of independent directors.
The bill also makes it harder to challenge whether a director is independent. It defines “controlling shareholder” and limits records available to shareholders who want to investigate a deal for conflicts.
At the committee hearing on Wednesday, lawmakers focused largely on the risk of companies leaving Delaware. Witnesses included corporate lawyers, law professors and a former judge on the state’s Court of Chancery, its business court, and mostly spoke in support of the bill.
Public comment was dominated by opposition from attorneys for shareholders who said they were excluded from the drafting process. They described the changes as radical, rushed and corrupt.
Joel Fleming, a lawyer who represents shareholders, told lawmakers the bill was a result of lobbying by Meta Platforms and would protect its CEO and controlling shareholder Mark Zuckerberg from potential liability that shareholders are currently investigating. CNBC published documents on Wednesday which it obtained from an open records request showing that Meyer, a Democrat, met with Meta officials in the weeks leading up to proposal of the bill.
“Those claims may now be dead,” Fleming told the lawmakers. “This is appalling.”
Meyer’s spokesperson Mila Myles said the governor met with Meta representatives to discuss corporate law but noted that the company did not lobby for the bill. She said the governor has been “meeting with everyone” to ensure the state remains a global leader.
Meta declined to comment.
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 TSLA.O 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 Noeleen Walder, Diane Craft and Paul Simao)