Washington, DC – In response to news that the Delaware legislature has passed SB 313 – which amends corporate governance provisions in Delaware law– the American Economic Liberties Project released the following statement.

“Delaware Governor John Carney must veto SB 313, a reckless piece of legislation that poses the most radical and ill-considered revision to corporate governance policy in decades,” said Laurel Kilgour, Research Manager at the American Economic Liberties Project. “This dangerous bill, rushed along by private equity lawyers, would allow corporate boards to secretly hand over their powers to third parties and foreign actors without informing shareholders. It goes far beyond reversing the court’s decision in West Palm Beach Firefighters’ Pension Fund v. Moelis, undermines transparency, and leaves minority shareholders–like pension funds for firefighters, teachers, and other civil servants–in the dark about who actually controls their investments in private companies. If Governor Carney doesn’t act, Congress may need to step in to set a floor for competent and accountable corporate governance.”

Delaware once had a reputation as a predictable, steady hand in the world of corporate governance with a system that sought to balance the interests of shareholders and company management through a “board-centric” model where boards make independent decisions on behalf of all shareholders. The SB 313 saga began when the Delaware Court of Chancery ruled in favor of a firefighters’ pension fund with a minority interest in an investment bank. West Palm Beach Firefighters’ Pension Fund v. Moelis & Company concerned a side agreement where a major shareholder unilaterally assumed core corporate governance powers from the bank’s board of directors. Although some board powers can be lawfully delegated, Delaware law specifies simple procedural safeguards that must be followed to ensure that all shareholders are given adequate notice of such delegations. The court invalidated a subset of the delegations in Moelis for not complying with Delaware General Corporate Law Section 141(a).

Some corporate lawyers who had disregarded these simple procedures became concerned their clients would suffer the consequences of not following Delaware law. Although the Moelis case has not yet been reviewed by the Delaware Supreme Court, the corporate bar circumvented the judicial process and drafted legislative amendments that go far beyond reversing the Moelis case and handed them off to be sponsored by Sen. Bryan Townsend (D-Newark) on May 23, 2024. Less than a month later, both chambers of the legislature approved the amendments despite widespread, vocal opposition, including from representatives of union pension funds and dozens of corporate law professors from around the country. The amendments would undermine Delaware’s board-centric model and may have other unintended consequences that will likely provoke years of litigation. Among other things, the amendments would allow boards to delegate power not only to controlling stockholders, but to “prospective” stockholders. The scope of delegation would likely encompass anything from director appointments to day-to-day governance decisions to control of specific projects involving artificial intelligence and other high-risk technologies involving sensitive personal data.

Learn more about Economic Liberties here.

###

The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.