As Delaware lawmakers prepare to hold hearings tomorrow about a bill that could reshape corporate America, some of the biggest corporate law firms are coming out in favor of it.
On Tuesday, 21 law firms — including Simpson Thacher and Bartlett; Cravath, Swaine & Moore; and Paul, Weiss, Rifkind, Wharton & Garrison — will publish a letter strongly supporting legislation that would override a series of decisions by the Delaware Court of Chancery. These rulings have prompted backlash from companies and led many, including Meta, to contemplate moving their incorporation outside the state.
The bill is “an important step in maintaining Delaware’s status as the jurisdiction of choice for sophisticated clients when they create companies,” the law firms write.
Delaware has been ensnared in controversy after several rulings, including Chancellor Kathaleen McCormick’s decision last year to nullify a big payout for Elon Musk at Tesla. While Mr. Musk’s ire over that decision brought attention to the chancery court, many corporate lawyers say they’re more broadly frustrated with the court’s treatment of companies with controlling shareholders, arguing that it has been overly deferential to noncontrolling shareholders.
Given how corporate America fuels Delaware’s budget, a group of Delaware state senators proposed a bill last month to amend the state constitution that would effectively override years of case law by the Delaware Court of Chancery. The group sidestepped the usual process for proposing bills, allowing it to move swiftly — but critics say that it also left out early input from key members of the influential Delaware bar.
The issue was a major topic at Tulane University’s Corporate Law Institute conference, a big gathering of deal makers held last week in New Orleans. “We are disempowering Delaware courts,” said Ned Weinberger, a partner at the plaintiffs’ law firm Labaton Keller Sucharow, arguing the amendment would erode the voice of minority shareholders.
Scott Barshay, a partner at Paul, Weiss and a top deal maker, said the amendment would help stop a corporate exodus from Delaware. “It’s very important that this legislation gets passed,” he said onstage at the conference.
The letter was born out of sideline conversations at the conference. It argues that, despite the relatively unusual intervention by the Delaware legislature, a response to corporate angst is not unprecedented.
“Over its long history at the epicenter of American corporate law, Delaware has repeatedly adjusted its approach in order to modernize and respond to market developments,” the lawyers write.
Other law firms that signed the letter include Kirkland & Ellis; Latham & Watkins; and Weil, Gotshal & Manges.
Corporate law insiders will notice one major law firm that didn’t sign: Wachtell, Lipton, Rosen & Katz, where Leo Strine Jr., a former chancellor of the Court of Chancery, is of counsel. (That said, Martin Lipton, one of the firm’s founders, wrote in support of the bill shortly after its release.)
At the conference, Mr. Strine allowed that more companies have become concerned about unpredictability in Delaware courts. Separately, David Katz, a senior partner in the mergers and acquisition practice at Wachtell, said the bill wasn’t connected to Mr. Musk’s criticism of Delaware, a common critique of it.
