A front page headline in today's WSJ explains that: Musk’s Rivals Fear He Will Target Them With His New Power.
Musk’s scorched-earth tactics have sent waves of concern through his lengthy list of business rivals, who over the years have included Microsoft co-founder and philanthropist Bill Gates and Amazon.com founder Jeff Bezos. They have watched him ascend to an unprecedented level of power for a private citizen while continuing to nurse his private business grievances.
The richest man in the world is poised to have significant influence not only over how his six companies, including X, Tesla and SpaceX, interact with the federal government—SpaceX has accumulated more than $15 billion in federal contracts over the last decade—but also over how the new administration treats his rivals. ...
Trump rode to the White House on promises to use federal power to exact “retribution” against his political enemies. Over his career, Musk has shown a similar taste for revenge, with a long list of perceived foes he has gone after through the courts and with his 200 million followers on X. People who have worked with Musk say he draws energy from the idea of having enemies.
What interests me about the potential ramifications of Musk's new bromance with Donald Trump is its potential impact on corporate law.
We know Elon is no fan of Delaware, its courts, and its corporate law. Recall the famous tweet:
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
After a string of losses in the Delaware courts, Musk finally moved Tesla's state of incorporation to Texas and SpaceX to Nevada.
As I explained in my book Corporate Governance after the Financial Crisis, Delaware's dominance of corporate law follows from its success in attracting companies to incorporate under its law. Other states have periodically challenged Delaware, but have routinely failed. My article DExit Drivers: Is Delaware's Dominance Threatened? concludes that Delaware's competitors are unlikely to prevail anytime soon. The number of reincorporations from Delaware remains minimal compared to the vast number of new incorporations Delaware attracts annually. Given the strong inertia behind the initial incorporation decision and the weak drivers for DExit, it is unlikely to become widespread soon.
As I thus explained in Corporate Governance after the Financial Crisis, Delaware's principal threat is not from other states but from the federal government. Although the federal government has never adopted a national law of corporations that would preempt Delaware law, it has several times considered doing so, and no one doubts its power under the Commerce Clause to do so. As former Delaware Chief Justice Leo Strine observed, “the capacious constitutional authority of Congress over interstate commerce is something that Delaware and other state corporate lawmakers have constantly had to take into account ….” Leo E. Strine Jr., Breaking the Corporate Governance Logjam In Washington: Some Constructive Thoughts on A Responsible Path Forward, 63 Bus. Law. 1079, 1081 (2008).
In his article, Delaware and Washington As Corporate Lawmakers, 34 Del. J. Corp. L. 1, 9 (2009), Harvard Law Professor Mark Roe thus observed that:
The big gorilla of American economic lawmaking is the Congress which, when it wants to, can dwarf the Delaware Court of Chancery, the Delaware General Assembly, and the Delaware Corporate Law Council, which drafts Delaware’s corporate law. They all have considerable freedom to act, but not on a corporate governance issue about which Washington has acted, and not if they upset those who can influence Washington.
Let's pause to emphasize his observation that Delaware could lose its freedom to make corporate law if it upsets "those who can influence Washington." Which is precisely what Delaware has done through Chancellor Kathaleen McCormick's decisions about Musk's Tesla compensation package.
There are already those in Washington who view Delaware corporate law with suspicion, if not outright hostility. Senator Elizabeth Warren favors mandatory federal incorporation of all businesses with more than $1 billion in annual revenue, which would displace Delaware law as to the largest and most prestigious of its companies. In the 2020 Presidential cycle, both Warren and Senator Bernie Sanders proposed expansive regulation of corporate governance at the federal level.
Is it too far fetched to imagine an unholy alliance of Musk and Warren collaborating to bring Delaware's dominance to an end?
