A few months ago, several changes congenial to Silicon Valley’s peculiar capital structure rocked Delaware’s corporate law. New amendments to the Delaware General Corporation Law (DGCL) use definitional jujitsu and checklist-style safe harbors to facilitate self-interested transactions by controlling stockholders (like Tech CEOs) and directors (like private equity representatives), without liability for breaching their fiduciary duties. These amendments, which come in the wake of Chancellor Kathaleen McCormick’s decision to rescind Elon Musk’s $56bn pay package, also narrow the universe of information available to stockholders seeking to enforce their rights and strip the Court of Chancery of some of its traditional, context-sensitive equity jurisdiction over fiduciary misconduct. The upshot is that shareholders will have fewer protections, while directors, officers, and controlling stockholders will more easily be able to engage in transactions from which they personally benefit. And just for good measure, the new provisions apply retroactively.
Yet the substance of these sweeping amendments may not even be the most remarkable thing about them. Though the Delaware General Assembly regularly updates the DGCL, it normally works closely with the State bar, as well as the judiciary and business community, before enacting any changes. This is, or has been, a world of polite stakeholder dialogue and consensus building. In this case, however, the amendments were rammed through the legislative process with little debate, as lawmakers panicked over the “DExit” of Delaware companies to Texas and Nevada. Indeed, the new bill was so controversial that various provisions were immediately fast-tracked for Supreme Court review.
Much commentary interprets these changes as driven by threats of capital flight. If Delaware doesn’t change, the story goes, Silicon Valley giants will leave and take their franchise taxes with it. The Court of Chancery might lose its status as the nation’s preeminent business court, and the significant portion of this small-state economy that relies upon business litigation could founder. Other observers, like Professor Anne Lipton, read these changes as part of the broader “contractification” of Delaware corporations and the privatization of corporate law. More and more, large stockholders (like venture capital firms) are free to create their own bespoke legal orders rather than submit to the statutory authority of directors and the equitable authority of the Court of Chancery.
What neither of these explanations capture, however, is just how overtly political things became. Once the province of technocratic back-room negotiation, Delaware law became another target of the culture wars. In the Delaware senate, fighting the amendments came to represent a defense of the rule of law amidst autocratic backsliding. Musk and his allies described reincorporating in Nevada and Texas as a way to avoid “activist,” “corrupt,” “woke” Delaware judges. MAGA-affiliated companies like Andreesen Horowitz, Tesla, and Trump Media & Technology Group proudly boasted about their defections—even if they weren’t actually corporations and therefore were never impacted by the problems that the amendments purportedly addressed. Meanwhile, stockholders gladly gave away their rights by voting in favor of relocation. Populism, it appears, has infected corporate governance.
Populism and Corporate Governance
In a new paper, I suggest that certain outcomes in corporate governance can’t be fully understood unless they are understood in terms of populism. While oligarchy can help explain why private equity favors the “contractification” of corporate law—oligarchs do tend to colonize lawmaking in their own self-interest—it cannot explain why ordinary stockholders voted in favor of these changes. Stockholders also approved a compensation plan that a judge, in a well-reasoned, well-justified 200-page opinion, called a rip-off. To be sure, investors may quite rationally want to keep a “superstar CEO” like Elon Musk happy because investing in Musk means rising shareholder value. This value, however, seems untethered to business fundamentals. Even after the Trump administration threatened Musk’s government contracts, even after the One Big Beautiful Bill Act eliminated an important source of Tesla revenue, and even after sales of Tesla automobiles plummeted worldwide, Tesla’s stock price has failed to crater. The support that Musk enjoys from the corporate dêmos, including Tesla’s numerous retail stockholders, seems tethered more closely to vibes than to quarterly profit margins.
Fortunately, political theorists have developed a concept that can help explain the surprising power of these vibes. It’s populism. While there are different approaches the study of populism, the two most common understand populism either as an ideology embraced by ordinary people and demagogues alike, or as a unique political strategy deployed by demagogues looking to evade traditional authorities by developing their own base of popular power. Scholars in both camps agree: when populists take power, they will undermine democracy and the rule of law.
Under the first approach, populism is an ideology that divides the world into “us,” the authentic sovereign people speaking with “common sense,” and “them,” the latte-drinking elites, the pointy headed bureaucrats, and the “takers” and “moochers” they cater to. Musk, of course, routinely engages in this kind of friend/enemy rhetoric. A quick perusal through his Twitter/X timeline reveals not only MAGA-type ideas, but also a demonization of corporate “elites”: “woke” institutional investors like Blackrock, vice presidents and their “DEI” ideology, lazy CEOs, and “corrupt” judges. These traitors would deprive Musk and his followers their rightful place as rulers of Musk’s companies and, therefore, must be delegitimized and fired.
As a political strategy, populism involves the use of daily, unmediated communication between a would-be leader and his followers. Since sovereignty lies with the people, the leader drums up popular support as he seeks to sidestep any naysaying institutional authorities like organized political parties, government branches, and independent media. To do so, the leader establishes an emotional connection with his otherwise disorganized and fickle supporters, calling them to battle as he tries to defeat their (often evolving) enemies.
Here again, Musk has embraced the populist approach. In his continuous posting on a communication platform that he controls and which connects him directly to his audience, he depicts himself as a far-right gladiator on a crusade to save civilization/humanity from “the woke mind virus.” Ex-Twitter employees were doxxed and harassed. Some had to hire private security. The mainstream financial press, which does not always cover him favorably, is “fake news.” Enlighted shareholders need simply ensure Musk appears on their timelines. Meanwhile, Musk constantly affirms (or attempts to affirm) popular support in Twitter/X polls (which he isn’t afraid to edit) with topics that range from moving corporate headquarters to deleting the “w” from “Twitter.” The result is that Tesla’s large retail shareholder base is in Musk’s camp.
The upshot of all this: when a populist leader enjoys sufficient support, he can trample the ordinary laws, norms, and institutions that otherwise govern collective decision-making. Claiming a mandate to rule that’s more convincing than values like the “rule of law,” “proceduralism” and “minority rights,” the populist chews through constitutions, courts, legacy media and political parties.
Seen from this perspective, Musk’s companies are an exaggerated microcosm for American democratic decay. While corporate boards were never the perfectly deliberative bodies contemplated by corporate law, the directors of Tesla and X are supine yes-men. While corporate elections are rarely contested, Musk is not above buying votes and holding referenda after-the-fact. Populists are “impatient of procedures.” Musk makes major corporate decisions on a whim and sometimes by polling social media. Populist leaders destroy courts or remake them in their own image. When Musk doesn’t like a judge and the laws she applies, he moves his companies to a friendlier jurisdiction. And he does it all while a riding a wave popular support from his rabid customer and retail shareholder base.
Tech oligarchs, like any other corporate titan in U.S. history, would love to live by their own rules. Thanks to Musk, they have discovered a new strategy to free themselves from the confines of democratic law and constitutions. Even Mark Zuckerberg has tried to copy it.
Wither Corporate Law?
Once viewed through the populist lens, the new amendments to Delaware’s corporate law can only seem like collaboration and capitulation. Rather than defending the rule of law and enforcing the rights of shareholders, the Delaware General Assembly has enabled Silicon Valley’s populists to do whatever they like. Corporate law, although always far from perfect, was supposed to ensure that the titans of industry acted lawfully and in the best interests of not only the stockholders, but their companies. Now, it seems, Delaware has opted for backsliding.
If this diagnosis is right, and populism has infected the world of corporate law, what can we expect in the years the come? What kind of corporate political economy will populism bring in its wake? At the very least, corporate populism can feed speculative bubbles and encourage fraudulent trading based upon lies and charisma. And it can hasten the interstate legal race-to-the-bottom for big tech business. But the risks are even more dire than threats to market stability. If companies engaging in mass surveillance ever run into regulatory roadblocks, will their CEOs relent, or simply recruit the masses to their cause? Will their shareholders even care if these companies are sharing data with ICE? If tech oligarchs crack the code of populism, will they win the struggle for power against MAGA and seed state policy with their accelerationist, neo-feudalist and racist ideology? If Congress ever attempts to crack down on cryptocurrency, will an army of populist crypto bros counter-mobilize? Or form their own sovereign nation?
Unlike Constitutional law, business law never seemed like any kind of democratic bulwark. After all, many smart people have argued that authoritarians often fruitfully exploit capitalism’s legal codes. Regrettably, we may soon learn to miss Delaware’s small contribution to the rule of law and democracy.
