Musk ‘Fealty’ Drives Delaware Exits as His Grip on Power Grows

All Elon Musk had to do to finally get some revenge against Delaware was become one of the world’s most powerful people.

As soon as the tech titan stepped into his new role as Donald Trump’s efficiency czar and began throwing his weight around in unprecedented ways, the “DExit” seemed to be underway. Meta Platforms Inc., Dropbox Inc., and Bill Ackman’s Pershing Square have since revealed potential plans to relocate.

It’s a reversal from 2024, when Musk called for a corporate exodus after the chief judge of Delaware’s elite business court voided his $56 billion pay package, but his plea went unheeded by the nearly 70% of Fortune 500 companies that call the state home.

“What’s different this time is Musk’s unique power,” said Lawrence Cunningham, director of the University of Delaware’s Weinberg Center for Corporate Governance. “Go back 10 years, and he was pretty powerful; five years, he was more powerful; then he gets Twitter, and now he’s best friends with Trump. I have to look through my history books to identify a captain of industry with that kind of influence.”

The world’s richest person is part of a new administration that’s purging perceived enemies and elevating friends. It’s impossible to disentangle that dynamic—including public ring-kissing by Mark Zuckerberg and Jeff Bezos—from the push to get on Musk’s good side by “teaching Delaware a lesson,” according to Tulane University law professor Ann Lipton.

“With Facebook, and probably Dropbox, and definitely Bill Ackman, these are expressive moves,” Lipton said. “It’s happening as he gets more powerful in general. His allies, his friends, and people who want his favor are demonstrating their fealty.”

Delaware’s new governor, Matt Meyer (D), responded to the reincorporations by suggesting reforms. But he avoided directly addressing Musk’s role in inciting discontent. “I’m not really on social media trying to figure out what’s going on and who’s causing it,” Meyer said in a Feb. 3 interview.

Musk called Meyer’s proposals “encouraging” in a post on X.

The state’s top court added a wrinkle Tuesday, overturning a decision involving TripAdvisor Inc. that had threatened damages when companies leave for states seen as friendlier to insiders. It wasn’t immediately clear how much Tuesday’s ruling—focused on the “speculative” nature of any shareholder claims—would help businesses like Meta that already face a slew of cases.

‘Rogue Judge’ Debate

The state’s influential corporate defense bar has compounded the criticism, voicing outrage over several novel rulings by Chancellor Kathaleen St. J. McCormick, who leads Delaware’s Chancery Court, and Vice Chancellor J. Travis Laster.

Those decisions cracked down on self-dealing, scrutinized agreements handing governance rights to insiders, and clarified the standards for controlling stockholders, who face special scrutiny. The critics say they blindsided businesses, undermining the stability that draws them to Delaware.

But there’s nothing necessarily disruptive about novel rulings, which happen whenever a court confronts a new factual context, according to Friedlander & Gorris PA founding partner Joel Friedlander.

“These decisions didn’t come out of thin air,” he said. “They’re based on precedent. We don’t have a rogue judge problem.”

McCormick’s “textbook” rulings to kill a pay package Tesla shareholders approved twice marshaled reams of evidence suggesting the votes weren’t conducted properly, according to Lipton. She called the “uncertainty” narrative unfair to McCormick and Laster.

“What used to be very malleable common law standards have actually, over time, morphed into much more definite rules,” Lipton said. “The complaint about uncertainty masks something else, which is that they don’t want to be held liable.”

Bench Depth

After the January 2024 pay decision, Musk moved Tesla Inc. to Texas, which recently established its own business court. The traditional incorporation alternative is Nevada—a sort of anti-Delaware where corporate managers bear little liability risk.

Judges in those states aren’t nearly as “fluent in corporate practice,” according to Cunningham, who said building a “deep bench” could take generations.

“You can copy Delaware’s statute, its court system, all the precedents,” Cunningham said. “You still need judges with that background.”

The sophistication is a two-way street, said Keith Bishop, a partner at Allen Matkins Leck Gamble Mallory & Natsis LLP. Delaware’s unnecessarily convoluted opinions have produced an “immense body of judge-made law” that only corporate attorneys can navigate, while Nevada takes the opposite approach to balancing flexibility with certainty, according to Bishop.

“You can pretty much read the statute and know the rules,” he said. “In Delaware, the rules are all coming from the heads of judges. They’re relatively inaccessible to somebody in a boardroom operating in real time.”

Partisan Corporate Governance

The parallel momentum toward nearby Texas reflects our “age of partisan corporate governance,” according to Lipton. Though its business court looks superficially like Delaware’s, it has features—such as short judicial terms—that facilitate tighter partisan oversight, she said.

“Elon Musk has allied himself closely with the Republican Party, and I think these companies are making a very rational gamble that if they’re on that side, they’re safe,” Lipton said. “A company that isn’t trying to identify itself with the Republican Party may not be so safe, because they don’t know when Ken Paxton is going to dissolve their charter over gender ideology.”

Musk has both shaped and been shaped by Delaware law, according to Lipton.

“There’s something very unsettling about a corporate governance system that allows people to amass that kind of power,” she said. “Other aspects of law are supposed to deal with that. But what do you do when his wealth overwhelms all of them?”