Delaware in Crisis: Battle for the Future of Corporate Law

Elon Musk's spectacular purchase of Twitter in October 2022 marked a milestone for the Delaware courts, but the chapter opened by Musk now brings the state into serious turbulence. Chancellor Kathaleen McCormick was originally celebrated for her smart mediation in the dispute between Musk and Twitter shareholders. Within a short period, Delaware was able to once again demonstrate its efficiency as the guardian of the corporate world. However, shortly thereafter, another decision shook Delaware's legal foundation. In January, McCormick declared the legendary $56 billion bonus for Musk invalid, a decision that elicited strong reactions from the Tesla founder. Musk expressed his frustration with Delaware in harsh words: "Never incorporate in Delaware." The decision has far-reaching consequences. A complex legal dispute intensified the debate: traditional business practices were declared inadmissible, which triggered alarming reactions. The Delaware legislature responded quickly and overturned the judicial decisions through amendments to the Delaware General Corporation Law. These hastily passed laws caused unrest among lawyers and led to confrontations that further heated the already tense atmosphere. The internal erosion of the Delaware Way, a routine and respectful legal practice, is unbearable for many. Former Chancellor William Chandler publicly criticized the decisions of McCormick and another judge, describing the current situation as intolerable. Lawyers and academics fear that Delaware will lose its status as a stronghold of corporate law and, with it, its economic advantage. A major problem lies in balancing the need to accommodate companies to keep them in the state and the obligation to maintain a complex and fair jurisdiction. Delaware, which is attractive to most of the S&P 500 companies due to its flexible jurisdiction, now suddenly finds itself in competition, particularly with states like Texas. The noticeable economic consequences are already beginning to show: companies like Fidelity National Financial are considering relocating to other states due to increasing liability risks in Delaware. A federal regulation on corporate law matters would deprive states of the ability to individual jurisprudence, which would be particularly devastating for Delaware. In the shadow of this legal dispute, the question remains whether Musk's battle for the billion-dollar profit will become a precedent. Musk and Tesla recently filed a petition to overturn the decision in favor of his gigantic pay package – a risky legal demand that puts McCormick in a bind. Amidst these uncertain times, some members of the Delaware Bar hope for peace and the renewal of the Delaware Way. McCormick herself publicly emphasized the importance of respectful discussions and the exchange of ideas.