After losing, in a judgment, 56 billion dollars in remuneration at Tesla, Elon Musk entered into a crusade against the American state of Delaware, where he has just withdrawn the headquarters of another of his companies, SpaceX.
The Delaware Chancery Court (DCC), one of the three constitutional courts of the state, specializing in business law, has been considered for more than a century as one of the pillars of American capitalism, because it is the jurisdiction reference of almost two thirds of the 500 largest companies in the country.
According to data from this eastern US state, almost 80% of IPOs were registered on its territory, with companies relying on the expertise of its judges as well as the reliability and stability of its legal system.
But a recent decision by the DCC against him has angered Mr. Musk, who considers the court a refuge for ultra-procedural lawyers and finicky judges who get in the way of his vision and strategic decisions.
A judge ruled at the end of January in favor of a shareholder of the automobile manufacturer Tesla who requested the cancellation of a compensation plan granted in 2018 to boss Elon Musk, estimated at $56 billion.
“SpaceX has moved from Delaware to Texas,” Elon Musk announced Wednesday on X (formerly Twitter), the social network he bought, adding: “if your company is still registered in Delaware, I recommend that you move it as quickly as possible”.
“Well done”
The first state to ratify the United States Constitution, Delaware and its courts have always played an essential role in American industry.
The DCC is “almost a de facto government agency” that sets the rules for businesses, according to Omari Scott Simmons, a law professor at George Washington University.
A pillar of entrepreneurship, it is one of the reference institutions concerning the internal functioning of American multinationals.
“There is something very curious in the United States, which means that if you create a company, you choose which laws will apply and which court will be in charge of their application,” underlines Simon Lorne, vice-president and director legal of Millenium Management.
“The only alternative would be legislation at the federal level, but I think that would be a mistake for the whole system. And Delaware has done a great job over the last 100 years,” he adds.
In terms of governance or conflict resolution, the country’s large companies comply with the decisions of the DCC as well as its more than century-old jurisprudence.
Another advantage, from a business point of view: Delaware judges are not elected, like in many American states, or appointed by political power but chosen by non-partisan commissions which favor expertise, according to Omari Scott Simmons.
And, unlike a federal agency, its courses are protected from changes in political majority.
Even more, unlike most other states, the chances of facing a jury are non-existent in Delaware: decisions are weighed and made only by judges.
No Exit
Mr. Musk’s anger led him to move SpaceX to Texas, one of a handful of states along with Nevada seeking to build a legal system that could compete with Delaware.
Although it appears difficult to dethrone the US east coast state, some observers fear a race to the bottom, with companies seeking jurisdictions where corporate oversight is less strict.
Elon Musk also moved his startup manufacturing Neuralink brain implants to Nevada, where he already installed the headquarters of X after its acquisition.
In each case, the companies are not publicly traded and Mr. Musk has full control.
But the issues in the case of Tesla, a listed company, could prove much more complex, as only a small proportion of shareholders opposing the move are needed to block it.
This is what happened to TripAdvisor, whose parent company’s CEO has so far failed to get Delaware’s departure adopted due to opposition from a few shareholders.
The DCC should also rule on the subject this month.
