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Delaware’s place as America’s company capital faces a watershed second as lawmakers think about laws that will dramatically alter the company panorama. In a Q&A with CCI editorial director Jennifer L. Gaskin, Munger, Tolles & Olson attorneys Andy Garelick and Nate Sussman unpack the controversial S.B. 21, explaining the way it might considerably affect shareholder rights and company accountability for hundreds of firms nationwide.
A invoice transferring swiftly via the Delaware legislature might rewrite company governance guidelines for hundreds of organizations throughout the nation. Already permitted by the state senate and anticipated to obtain a vote in the home as quickly as subsequent week, the invoice, which proposes a collection of amendments to the Delaware Basic Company Regulation, has develop into a flashpoint in a rising debate over shareholder rights, company accountability and the state’s future as the popular place for incorporation.
Each the substance of S.B. 21 and the truncated course of via which it got here to life have drawn sharp criticism. Although the laws represents probably the most important adjustments to Delaware’s company legislation in a long time, it bypassed the Delaware Bar’s Company Regulation Council overview course of in favor of an expedited strategy that many discover troubling.
Critics have dubbed it the “Billionaires’ Invoice,” whereas supporters body it as obligatory reform to revive predictability to the state’s company governance framework after current court docket choices “muddied” key elements of Delaware’s authorized franchise, Senate Majority Chief Bryan Townsend, the invoice’s primary sponsor, informed Delaware First Media.
Reshaping shareholder rights
How Delaware-registered firms work together with their shareholders would essentially change if S.B. 21 turns into legislation. On the coronary heart of the laws are main revisions to guidelines round books and data requests and the definition of controlling shareholders.
The invoice would chop the scope of what shareholders can request beneath “books and data” inspections to a selected, prolonged checklist that explicitly contains “charters, bylaws, stockholder assembly minutes, communications to stockholders, board minutes, board supplies [and] annual monetary statements,” however might doubtlessly exclude emails, textual content messages or casual board communications which have develop into central to by-product litigation, in accordance with an evaluation printed on Columbia Regulation College’s BlueSky weblog.
It additionally would impose a three-year lookback limitation on data requests and require that supplies be “particularly associated” to the stockholder’s said objective, a change that might current compliance challenges, mentioned Munger, Tolles & Olson companion Andy Garelick and affiliate Nate Sussman in a written Q&A with CCI.
“[It] could also be troublesome to find out prematurely the precise necessities of the ‘particularly associated’ commonplace, significantly earlier than a physique of judicial precedent has developed across the new guidelines,” Garelick and Sussman wrote.
A coalition of client and investor safety teams, together with Public Citizen, People for Monetary Reform and the Shopper Federation of America, has rejected the invoice, arguing it might “eviscerate investor rights, dramatically restrict judicial oversight and make it just about inconceivable to carry grasping company actors accountable for self-dealing.”
The invoice additionally would redefine what constitutes a controlling stockholder with a 33.33% possession threshold, a bright-line rule that will exclude influential-but-controversial figures like Elon Musk, who owns a reported 21% of Tesla. In 2024, Tesla CEO Musk, now a main adviser to President Donald Trump and head of the quasi-governmental DOGE company, reincorporated the electrical automaker in Texas, transferring it from Delaware after Court docket of Chancery Chancellor Kathaleen McCormick rejected Musk’s $50 billion-plus compensation bundle.
Beneath is a frivolously edited Q&A with Munger, Tolles & Olson companion Andy Garelick and affiliate Nate Sussman about how S.B. 21 might reshape compliance practices and stakeholder relationships if enacted.
CCI: Delaware Senate Invoice 21 represents probably the most important adjustments to the state’s company legislation in a long time. Critics have dubbed it the “Billionaires’ Invoice,” whereas supporters body it as obligatory reform. How would you characterize the invoice’s core objective and whose curiosity it primarily serves? How wouldn’t it reshape the present steadiness?
Andy Garelick & Nate Sussman: The core objective of this invoice is to supply better readability for Delaware firms and their boards of administrators primarily in two areas: navigating transactions with insiders and controlling stockholders; and responding to stockholder books-and-records requests. The present state of affairs is characterised by important judicial discretion in each areas. For instance, courts are presently empowered to resolve whether or not a company transaction concerned a “controlling stockholder” — and due to this fact the suitable commonplace of overview — on an after-the-fact, case-by-case foundation. S.B. 21 would particularly outline when an organization has a “controlling stockholder,” in order that this reality, and the procedural pointers and judicial commonplace of overview for a proposed transaction, could possibly be recognized and addressed prematurely. Though certainty in these areas tends to profit company decision-makers (i.e., administrators and officers) most instantly, it arguably serves all stakeholders’ pursuits for Delaware legislation to be clear and constant in issues of company governance.
CCI: The invoice proposes redefining “controlling stockholder” with a 33.33% threshold. How would this have an effect on governance at firms with influential leaders who personal lower than this quantity, reminiscent of Tesla beneath Elon Musk, who’s reported to personal 21% of the automaker, placing him beneath the brink?
Garelick & Sussman: Administrators and officers of a Delaware company proceed to have fiduciary duties to the company and its stockholders. Nothing in S.B. 21 adjustments that reality. If a stockholder in a Delaware company owns lower than the 33.33% threshold and isn’t in any other case a director or officer of that company, then S.B. 21 would successfully go away business-judgment discretion to the board when coming into right into a transaction with or involving that stockholder. That is in step with the broader objective of S.B. 21. It could impose a bright-line rule that states, “beneath this line, because it pertains to stockholders coping with the company and its administrators, the events are in duty-of-care land.”
CCI: How may these amendments affect activist traders pushing for ESG and DEI initiatives? Will their skill to affect company habits be diminished beneath the brand new framework?
Garelick & Sussman: Traders who search to affect an organization’s place on social subjects, reminiscent of ESG and DEI, rely (partly) on analyzing an organization’s current insurance policies and practices via books-and-records requests beneath Delaware legislation. By means of S.B. 21, a stockholder’s entry to an organization’s books and data can be restricted in a number of respects, together with by (a) defining “books and data” as a listing of particular supplies (together with organizational paperwork, board and committee assembly minutes, director and officer independence questionnaires, supplies supplied to administrators in reference to board or committee actions, sure agreements, and monetary statements, stockholder assembly minutes and communications with firm stockholders for the previous three years), (b) requiring the stockholder’s demand to explain, “with affordable significantly,” their objective and the data they want to examine and (c) requiring that the books and data sought be “particularly associated” to the stockholder’s objective. Absent a displaying that the company failed to keep up sure data like monetary statements or board assembly minutes, or {that a} stockholder has an unbiased authorized foundation to hunt manufacturing of broader data, the proposed restrictions would restrict an investor’s skill to achieve entry to much less formal supplies (reminiscent of texts and emails) that might doubtlessly seize a extra complete look into insider views on an organization’s ESG and DEI efforts, due to this fact lowering the investor’s skill to affect sure company behaviors the place extra formal books-and-record is likely to be much less useful.
CCI: How may the books-and-records limitation have an effect on shareholders’ skill to research potential company misconduct or governance failures?
Garelick & Sussman: The proposed amendments to Part 220 attempt to serve the reputable want to provide stockholders applicable ranges of entry whereas avoiding burdensome “fishing expeditions” by potential plaintiffs and attorneys who seek for alternatives to problem company actions with the good thing about retrospect. S.B. 21 strikes this steadiness by offering better readability on what books and data a Delaware company ought to keep and the circumstances beneath which these supplies have to be turned over to stockholders. Underneath this strategy, the invoice encourages greatest practices with respect to company record-keeping, which usually advantages all stakeholders.
CCI: What compliance challenges may come up from the brand new requirement that shareholders should present requested supplies are “particularly associated” to their said objective?
Garelick & Sussman: Underneath present legislation, a stockholder will need to have a “correct objective” for his or her books-and-records request. S.B. 21 would improve this commonplace by requiring requests to be “particularly associated” to the stockholder’s correct objective. If enacted in its present kind, S.B. 21 might pose compliance challenges for Delaware firms as a result of it might be troublesome to find out prematurely the precise necessities of the “particularly associated” commonplace, significantly earlier than a physique of judicial precedent has developed across the new guidelines.
CCI: Might you clarify how these new confidentiality restrictions on company data may have an effect on transparency for on a regular basis traders, together with these invested via pension funds?
Garelick & Sussman: The invoice permits firms to impose affordable restrictions on the confidentiality, use, and distribution of the books and data it produces to stockholders. In lots of respects, one can see why this rule is smart and is in step with the remainder of Part 220. If, in a books-and-records request, stockholders are required to make specific calls for particularly regarding their correct objective, it follows that the company might want to limit the stockholder from merely sharing the supplies it receives with any third social gathering (together with non-stockholders, or oblique helpful house owners, such because the vast teams of people who’re invested via autos like pension funds). After all, one may see how this rule could possibly be abused by company insiders to restrict stockholders’ reputable makes use of of the data they obtain. The steadiness appears to put important stress on the “reasonableness” commonplace and presumably would require firms to base any confidentiality restrictions they impose on a reputable concern.
Delaware’s place as America’s company capital faces a watershed second as lawmakers think about laws that will dramatically alter the company panorama. In a Q&A with CCI editorial director Jennifer L. Gaskin, Munger, Tolles & Olson attorneys Andy Garelick and Nate Sussman unpack the controversial S.B. 21, explaining the way it might considerably affect shareholder rights and company accountability for hundreds of firms nationwide.
A invoice transferring swiftly via the Delaware legislature might rewrite company governance guidelines for hundreds of organizations throughout the nation. Already permitted by the state senate and anticipated to obtain a vote in the home as quickly as subsequent week, the invoice, which proposes a collection of amendments to the Delaware Basic Company Regulation, has develop into a flashpoint in a rising debate over shareholder rights, company accountability and the state’s future as the popular place for incorporation.
Each the substance of S.B. 21 and the truncated course of via which it got here to life have drawn sharp criticism. Although the laws represents probably the most important adjustments to Delaware’s company legislation in a long time, it bypassed the Delaware Bar’s Company Regulation Council overview course of in favor of an expedited strategy that many discover troubling.
Critics have dubbed it the “Billionaires’ Invoice,” whereas supporters body it as obligatory reform to revive predictability to the state’s company governance framework after current court docket choices “muddied” key elements of Delaware’s authorized franchise, Senate Majority Chief Bryan Townsend, the invoice’s primary sponsor, informed Delaware First Media.
Reshaping shareholder rights
How Delaware-registered firms work together with their shareholders would essentially change if S.B. 21 turns into legislation. On the coronary heart of the laws are main revisions to guidelines round books and data requests and the definition of controlling shareholders.
The invoice would chop the scope of what shareholders can request beneath “books and data” inspections to a selected, prolonged checklist that explicitly contains “charters, bylaws, stockholder assembly minutes, communications to stockholders, board minutes, board supplies [and] annual monetary statements,” however might doubtlessly exclude emails, textual content messages or casual board communications which have develop into central to by-product litigation, in accordance with an evaluation printed on Columbia Regulation College’s BlueSky weblog.
It additionally would impose a three-year lookback limitation on data requests and require that supplies be “particularly associated” to the stockholder’s said objective, a change that might current compliance challenges, mentioned Munger, Tolles & Olson companion Andy Garelick and affiliate Nate Sussman in a written Q&A with CCI.
“[It] could also be troublesome to find out prematurely the precise necessities of the ‘particularly associated’ commonplace, significantly earlier than a physique of judicial precedent has developed across the new guidelines,” Garelick and Sussman wrote.
A coalition of client and investor safety teams, together with Public Citizen, People for Monetary Reform and the Shopper Federation of America, has rejected the invoice, arguing it might “eviscerate investor rights, dramatically restrict judicial oversight and make it just about inconceivable to carry grasping company actors accountable for self-dealing.”
The invoice additionally would redefine what constitutes a controlling stockholder with a 33.33% possession threshold, a bright-line rule that will exclude influential-but-controversial figures like Elon Musk, who owns a reported 21% of Tesla. In 2024, Tesla CEO Musk, now a main adviser to President Donald Trump and head of the quasi-governmental DOGE company, reincorporated the electrical automaker in Texas, transferring it from Delaware after Court docket of Chancery Chancellor Kathaleen McCormick rejected Musk’s $50 billion-plus compensation bundle.
Beneath is a frivolously edited Q&A with Munger, Tolles & Olson companion Andy Garelick and affiliate Nate Sussman about how S.B. 21 might reshape compliance practices and stakeholder relationships if enacted.
CCI: Delaware Senate Invoice 21 represents probably the most important adjustments to the state’s company legislation in a long time. Critics have dubbed it the “Billionaires’ Invoice,” whereas supporters body it as obligatory reform. How would you characterize the invoice’s core objective and whose curiosity it primarily serves? How wouldn’t it reshape the present steadiness?
Andy Garelick & Nate Sussman: The core objective of this invoice is to supply better readability for Delaware firms and their boards of administrators primarily in two areas: navigating transactions with insiders and controlling stockholders; and responding to stockholder books-and-records requests. The present state of affairs is characterised by important judicial discretion in each areas. For instance, courts are presently empowered to resolve whether or not a company transaction concerned a “controlling stockholder” — and due to this fact the suitable commonplace of overview — on an after-the-fact, case-by-case foundation. S.B. 21 would particularly outline when an organization has a “controlling stockholder,” in order that this reality, and the procedural pointers and judicial commonplace of overview for a proposed transaction, could possibly be recognized and addressed prematurely. Though certainty in these areas tends to profit company decision-makers (i.e., administrators and officers) most instantly, it arguably serves all stakeholders’ pursuits for Delaware legislation to be clear and constant in issues of company governance.
CCI: The invoice proposes redefining “controlling stockholder” with a 33.33% threshold. How would this have an effect on governance at firms with influential leaders who personal lower than this quantity, reminiscent of Tesla beneath Elon Musk, who’s reported to personal 21% of the automaker, placing him beneath the brink?
Garelick & Sussman: Administrators and officers of a Delaware company proceed to have fiduciary duties to the company and its stockholders. Nothing in S.B. 21 adjustments that reality. If a stockholder in a Delaware company owns lower than the 33.33% threshold and isn’t in any other case a director or officer of that company, then S.B. 21 would successfully go away business-judgment discretion to the board when coming into right into a transaction with or involving that stockholder. That is in step with the broader objective of S.B. 21. It could impose a bright-line rule that states, “beneath this line, because it pertains to stockholders coping with the company and its administrators, the events are in duty-of-care land.”
CCI: How may these amendments affect activist traders pushing for ESG and DEI initiatives? Will their skill to affect company habits be diminished beneath the brand new framework?
Garelick & Sussman: Traders who search to affect an organization’s place on social subjects, reminiscent of ESG and DEI, rely (partly) on analyzing an organization’s current insurance policies and practices via books-and-records requests beneath Delaware legislation. By means of S.B. 21, a stockholder’s entry to an organization’s books and data can be restricted in a number of respects, together with by (a) defining “books and data” as a listing of particular supplies (together with organizational paperwork, board and committee assembly minutes, director and officer independence questionnaires, supplies supplied to administrators in reference to board or committee actions, sure agreements, and monetary statements, stockholder assembly minutes and communications with firm stockholders for the previous three years), (b) requiring the stockholder’s demand to explain, “with affordable significantly,” their objective and the data they want to examine and (c) requiring that the books and data sought be “particularly associated” to the stockholder’s objective. Absent a displaying that the company failed to keep up sure data like monetary statements or board assembly minutes, or {that a} stockholder has an unbiased authorized foundation to hunt manufacturing of broader data, the proposed restrictions would restrict an investor’s skill to achieve entry to much less formal supplies (reminiscent of texts and emails) that might doubtlessly seize a extra complete look into insider views on an organization’s ESG and DEI efforts, due to this fact lowering the investor’s skill to affect sure company behaviors the place extra formal books-and-record is likely to be much less useful.
CCI: How may the books-and-records limitation have an effect on shareholders’ skill to research potential company misconduct or governance failures?
Garelick & Sussman: The proposed amendments to Part 220 attempt to serve the reputable want to provide stockholders applicable ranges of entry whereas avoiding burdensome “fishing expeditions” by potential plaintiffs and attorneys who seek for alternatives to problem company actions with the good thing about retrospect. S.B. 21 strikes this steadiness by offering better readability on what books and data a Delaware company ought to keep and the circumstances beneath which these supplies have to be turned over to stockholders. Underneath this strategy, the invoice encourages greatest practices with respect to company record-keeping, which usually advantages all stakeholders.
CCI: What compliance challenges may come up from the brand new requirement that shareholders should present requested supplies are “particularly associated” to their said objective?
Garelick & Sussman: Underneath present legislation, a stockholder will need to have a “correct objective” for his or her books-and-records request. S.B. 21 would improve this commonplace by requiring requests to be “particularly associated” to the stockholder’s correct objective. If enacted in its present kind, S.B. 21 might pose compliance challenges for Delaware firms as a result of it might be troublesome to find out prematurely the precise necessities of the “particularly associated” commonplace, significantly earlier than a physique of judicial precedent has developed across the new guidelines.
CCI: Might you clarify how these new confidentiality restrictions on company data may have an effect on transparency for on a regular basis traders, together with these invested via pension funds?
Garelick & Sussman: The invoice permits firms to impose affordable restrictions on the confidentiality, use, and distribution of the books and data it produces to stockholders. In lots of respects, one can see why this rule is smart and is in step with the remainder of Part 220. If, in a books-and-records request, stockholders are required to make specific calls for particularly regarding their correct objective, it follows that the company might want to limit the stockholder from merely sharing the supplies it receives with any third social gathering (together with non-stockholders, or oblique helpful house owners, such because the vast teams of people who’re invested via autos like pension funds). After all, one may see how this rule could possibly be abused by company insiders to restrict stockholders’ reputable makes use of of the data they obtain. The steadiness appears to put important stress on the “reasonableness” commonplace and presumably would require firms to base any confidentiality restrictions they impose on a reputable concern.
