Elon Musk is once again directing his attention toward Delaware.
The billionaire entrepreneur, currently poised to assume the role of efficiency czar under Donald Trump’s administration, is reigniting his campaign against the state notorious for its corporate law framework. Following the recent elections, Musk declared his intent to leverage his influence with Trump to pursue what he describes as “corrective action” aimed at “egregiously wrong legal judgments in a single state.”
At the heart of Musk’s discontent is a staggering $56 billion resentment toward the chief judge of Delaware’s esteemed business court, who invalidated his lucrative compensation package. As the judge deliberates Musk’s extraordinary petition to reinstate this pay structure—a decision influenced by a Tesla Inc. shareholder vote—his implicit threat to overhaul corporate law could be interpreted as a strategic maneuver to pressure the judge, according to Tulane University law professor Ann Lipton.
If Trump’s Republican party maintains control over the White House and both legislative chambers, Musk may find his opportunity for revenge within reach. However, the prospect of shifting corporate law from Delaware’s specialized judiciary into the turbulent waters of national politics—which could vary dramatically with each election cycle—raises concerns about unintended consequences.
“This is kind of like a wish on a monkey’s paw,” Lipton remarked, referencing the classic horror trope that highlights the irony of wishes gone awry. “I doubt very much he’s thinking that far ahead.”
The response from Trump and congressional allies regarding Musk’s initiative will be a significant indicator of his influence, according to Oklahoma University law professor Megan Shaner. The proposal would likely be deemed constitutional under the commerce clause, and existing federal securities regulations already impact corporate activity on the periphery.
Musk’s proposition seems to echo themes typically associated with progressive reforms designed to heighten corporate accountability. Yet, experts assert that Musk’s motivations appear largely self-serving. “I don’t think Elon Musk is particularly concerned with good governance,” Lipton stated. “He wants his $56 billion back.”
A Counterintuitive Push
His latest confrontation with Delaware follows a prolonged campaign that has unsettled the state’s close-knit legal network, centered around the seven-judge Chancery Court.
Musk’s vehement critiques, disseminated to a vast audience through his social media platform, X, have escalated long-standing worries about a “race to the bottom,” where states exploit lax liability regulations to attract corporate charters. The relocation of some of Musk’s ventures to Nevada and Texas has further intensified these concerns.
When there are egregiously wrong legal judgments in a single state that substantially harm American citizens in all other 49 states, the Federal government should take immediate corrective action
— Elon Musk (@elonmusk) November 7, 2024
Nonetheless, the notion of federalizing corporate law represents a paradoxical move, as noted by Shaner. Musk may not realize that he is arguably better positioned to navigate the current system, which allows significant employers to sway lawmakers by leveraging contrasting jurisdictions.
“He has a home state advantage,” she explained, arguing that he would face challenges in maneuvering through the complexities of federal law.
The rationale for advocating federalization, traditionally championed by figures like Ralph Nader and Elizabeth Warren, revolves around enforcing stringent social and economic regulations. This includes enabling non-shareholders to elect board members, providing employees with voting rights, and establishing fiduciary responsibilities to outside stakeholders capable of initiating legal action to hold companies accountable.
Musk’s perspective, however, is likely to prioritize a more self-serving, “ruthless shareholder-centric version,” as speculated by University of Maryland law professor William Moon.
Southern Methodist University law professor Carliss Chatman described Musk’s proposal as “a solution in search of a problem,” suggesting that any resultant framework would resemble the existing Delaware legal structure.
Delaware Dominance
The overwhelming dominance of the Delaware model is evident, as lawmakers in Nevada—positioning itself as the anti-Delaware—have prohibited judges from referencing Delaware legal precedents for guidance. “These are experienced jurists who specialize in crafting the best corporate law for everyone,” Shaner stated. “A federal judge doesn’t always have that experience. What other resource would they look to?”
The sheer volume of federal judges and a potentially gridlocked Congress could create disarray in a domain that thrives on the stability provided by seven expert judges who are accessible to all corporate stakeholders, Lipton argued. “Capital is mobile,” Moon pointed out, emphasizing that companies may seek jurisdictions that ensure legal certainty.
Kathaleen St. J. McCormick, the judge who invalidated Musk’s pay package, subtly acknowledged his influence at a recent address at George Washington University. McCormick stressed the significance of addressing the concerns of influential billionaires as they play a crucial role in the corporate ecosystem.
Despite the escalating “megaphones,” McCormick remarked that she remains focused on her responsibilities, which keeps her from becoming “overly stressed” about outside pressures.
Chatman posited that following a year of intense scrutiny—including thousands of letters directed at McCormick from Tesla investors—it’s difficult to believe that Musk retains any realistic hope of swaying her judgment. Instead, he appears to be motivated by sheer spite, invoking notions of “classic agency capture.”
“He probably thinks that he got Trump elected and whoever’s in charge of these new federal corporations is going to be one of his friends,” Chatman speculated.
While Musk may indeed have some level of influence, collaborating with the federal government could expose corporations to the unpredictable nature of political shifts, according to Lipton. By entangling corporate law within the “congressional meat-grinder,” Musk would risk obscuring his ability to guide its trajectory effectively.
What are the potential risks of federalizing corporate law as proposed by Elon Musk?
**Interview with Legal Expert on Elon Musk’s Recent Efforts to Overhaul Corporate Law in Delaware**
**Interviewer:** Today, we’re joined by legal expert Professor Ann Lipton from Tulane University. Welcome, Professor Lipton.
**Ann Lipton:** Thank you for having me.
**Interviewer:** Elon Musk is once again focusing on Delaware following his recent controversies involving the state’s corporate law framework. In your opinion, what are the implications of Musk’s plan to push for changes in corporate law at a federal level?
**Ann Lipton:** It’s quite interesting, really. Musk’s frustration seems rooted in personal grievance—his $56 billion compensation package was invalidated by a Delaware judge. While his call for “corrective action” might resonate with some, it raises significant questions about the practicalities and consequences of federalizing corporate law.
**Interviewer:** You mentioned potential consequences. Could you elaborate on what those might be?
**Ann Lipton:** Certainly. Moving corporate law away from Delaware’s specialized Chancery Court could lead to a more chaotic system, particularly since federal laws could vary between election cycles. There’s also valid concern that shifting these cases into national politics might invite inconsistency in judicial decisions and enforcement.
**Interviewer:** Some experts argue that Musk’s motivations are largely self-serving. Do you agree with that assessment?
**Ann Lipton:** Absolutely. While he presents this as a broader concern for corporate accountability, it’s quite clear that his primary interest lies in reinstating his own financial benefits. Musk’s approach is more about his bottom line than the greater good.
**Interviewer:** What do you think about the potential response from the Trump administration and Congress? Could they support Musk on this?
**Ann Lipton:** That will be intriguing to watch. However, it’s crucial to understand that although the proposal may hold some constitutional ground, the nuances of corporate law aren’t easily translatable into the federal framework. Given Trump’s administration’s history, it could depend on how beneficial this initiative appears politically.
**Interviewer:** many are concerned about a potential “race to the bottom” in corporate law if states start exploiting lower regulations. How do you see this evolving?
**Ann Lipton:** That’s a real danger. Musk’s criticisms of Delaware could fuel that very race he seems to oppose. If states begin to compete for corporate charters by relaxing their standards, the stability and accountability currently present under Delaware law could diminish, which would not serve shareholders or the public well.
**Interviewer:** Thank you, Professor Lipton, for sharing your insights on this complex issue. It’s certainly an ongoing story to watch.
**Ann Lipton:** Thank you for having me. It’s been a pleasure discussing this important subject.
