Inside Delaware ‘Billionaire’s Bill’ [Q&A]

A bill moving swiftly through the Delaware legislature could rewrite corporate governance rules for thousands of organizations across the country. Already approved by the state senate and expected to receive a vote in the house as soon as next week, the bill, which proposes a series of amendments to the Delaware General Corporation Law, has become a flashpoint in a rising debate over shareholder rights, corporate accountability and the state’s future as the preferred place for incorporation. 

Both the substance of S.B. 21 and the truncated process through which it came to life have drawn sharp criticism. Though the legislation represents one of the most significant changes to Delaware’s corporate law in decades, it bypassed the Delaware Bar’s Corporation Law Council review process in favor of an expedited approach that many find troubling. 

Critics have dubbed it the “Billionaires’ Bill,” while supporters frame it as necessary reform to restore predictability to the state’s corporate governance framework after recent court decisions “muddied” key aspects of Delaware’s legal franchise, Senate Majority Leader Bryan Townsend, the bill’s main sponsor, told Delaware First Media.

Reshaping shareholder rights

How Delaware-registered corporations interact with their shareholders would fundamentally change if S.B. 21 becomes law. At the heart of the legislation are major revisions to rules around books and records requests and the definition of controlling shareholders.

The bill would narrow the scope of what shareholders can request under “books and records” inspections to a specific, lengthy list that explicitly includes “charters, bylaws, stockholder meeting minutes, communications to stockholders, board minutes, board materials [and] annual financial statements,” but could potentially exclude emails, text messages or informal board communications that have become central to derivative litigation, according to an analysis published on Columbia Law School’s BlueSky blog.

It also would impose a three-year lookback limitation on records requests and require that materials be “specifically related” to the stockholder’s stated purpose, a change that could present compliance challenges, said Munger, Tolles & Olson partner Andy Garelick and associate Nate Sussman in a written Q&A with CCI.

“[It] may be difficult to determine in advance the exact requirements of the ‘specifically related’ standard, particularly before a body of judicial precedent has developed around the new rules,” Garelick and Sussman wrote.

A coalition of consumer and investor protection groups, including Public Citizen, Americans for Financial Reform and the Consumer Federation of America, has rejected the bill, arguing it would “eviscerate investor rights, dramatically limit judicial oversight and make it virtually impossible to hold greedy corporate actors accountable for self-dealing.”

The bill also would redefine what constitutes a controlling stockholder with a 33.33% ownership threshold, a bright-line rule that would exclude influential-but-controversial figures like Elon Musk, who owns a reported 21% of Tesla. In 2024, Tesla CEO Musk, now a primary adviser to President Donald Trump and head of the quasi-governmental DOGE agency, reincorporated the electric automaker in Texas, moving it from Delaware after Court of Chancery Chancellor Kathaleen McCormick rejected Musk’s $50 billion-plus compensation package. 

Below is a lightly edited Q&A with Munger, Tolles & Olson partner Andy Garelick and associate Nate Sussman about how S.B. 21 could reshape compliance practices and stakeholder relationships if enacted.

CCI: Delaware Senate Bill 21 represents one of the most significant changes to the state’s corporate law in decades. Critics have dubbed it the “Billionaires’ Bill,” while supporters frame it as necessary reform. How would you characterize the bill’s core purpose and whose interest it primarily serves? How would it reshape the current balance?

Andy Garelick & Nate Sussman: The core purpose of this bill is to provide greater clarity for Delaware corporations and their boards of directors primarily in two areas: navigating transactions with insiders and controlling stockholders; and responding to stockholder books-and-records requests. The current state of affairs is characterized by significant judicial discretion in both areas. For example, courts are currently empowered to decide whether a corporate transaction involved a “controlling stockholder” — and therefore the appropriate standard of review — on an after-the-fact, case-by-case basis. S.B. 21 would specifically define when a corporation has a “controlling stockholder,” so that this fact, and the procedural guidelines and judicial standard of review for a proposed transaction, could be identified and addressed in advance. Although certainty in these areas tends to benefit corporate decision-makers (i.e., directors and officers) most directly, it arguably serves all stakeholders’ interests for Delaware law to be clear and consistent in matters of corporate governance.

CCI: The bill proposes redefining “controlling stockholder” with a 33.33% threshold. How would this affect governance at companies with influential leaders who own less than this amount, such as Tesla under Elon Musk, who is reported to own 21% of the automaker, putting him under the threshold?

Garelick & Sussman: Directors and officers of a Delaware corporation continue to have fiduciary duties to the corporation and its stockholders. Nothing in S.B. 21 changes that fact. If a stockholder in a Delaware corporation owns less than the 33.33% threshold and is not otherwise a director or officer of that corporation, then S.B. 21 would effectively leave business-judgment discretion to the board when entering into a transaction with or involving that stockholder. This is consistent with the broader purpose of S.B. 21. It would impose a bright-line rule that states, “below this line, as it relates to stockholders dealing with the corporation and its directors, the parties are in duty-of-care land.”

CCI: How might these amendments impact activist investors pushing for ESG and DEI initiatives? Will their ability to influence corporate behavior be diminished under the new framework?

Garelick & Sussman: Investors who seek to influence a corporation’s position on social topics, such as ESG and DEI, rely (in part) on examining a corporation’s existing policies and practices through books-and-records requests under Delaware law. Through S.B. 21, a stockholder’s access to a corporation’s books and records would be restricted in several respects, including by (a) defining “books and records” as a list of specific materials (including organizational documents, board and committee meeting minutes, director and officer independence questionnaires, materials provided to directors in connection with board or committee actions, certain agreements, and financial statements, stockholder meeting minutes and communications with company stockholders for the preceding three years), (b) requiring the stockholder’s demand to describe, “with reasonable particularly,” their purpose and the records they wish to inspect and (c) requiring that the books and records sought be “specifically related” to the stockholder’s purpose. Absent a showing that the corporation failed to maintain certain records like financial statements or board meeting minutes, or that a stockholder has an independent legal basis to seek production of broader records, the proposed restrictions would limit an investor’s ability to gain access to less formal materials (such as texts and emails) that could potentially capture a more comprehensive look into insider views on a corporation’s ESG and DEI efforts, therefore reducing the investor’s ability to influence certain corporate behaviors where more formal books-and-record might be less helpful.

CCI: How might the books-and-records limitation affect shareholders’ ability to investigate potential corporate misconduct or governance failures?

Garelick & Sussman: The proposed amendments to Section 220 try to serve the legitimate need to give stockholders appropriate levels of access while avoiding burdensome “fishing expeditions” by potential plaintiffs and attorneys who search for opportunities to challenge corporate actions with the benefit of retrospect. S.B. 21 strikes this balance by providing greater clarity on what books and records a Delaware corporation should maintain and the circumstances under which those materials need to be turned over to stockholders. Under this approach, the bill encourages best practices with respect to corporate record-keeping, which generally benefits all stakeholders.

CCI: What compliance challenges might arise from the new requirement that shareholders must show requested materials are “specifically related” to their stated purpose?

Garelick & Sussman: Under current law, a stockholder must have a “proper purpose” for their books-and-records request. S.B. 21 would enhance this standard by requiring requests to be “specifically related” to the stockholder’s proper purpose. If enacted in its current form, S.B. 21 could pose compliance challenges for Delaware corporations because it may be difficult to determine in advance the exact requirements of the “specifically related” standard, particularly before a body of judicial precedent has developed around the new rules.

CCI: Could you explain how these new confidentiality restrictions on corporate records might affect transparency for everyday investors, including those invested through pension funds?

Garelick & Sussman: The bill permits corporations to impose reasonable restrictions on the confidentiality, use, and distribution of the books and records it produces to stockholders. In many respects, one can see why this rule makes sense and is consistent with the rest of Section 220. If, in a books-and-records request, stockholders are required to make particular demands specifically relating to their proper purpose, it follows that the corporation may wish to restrict the stockholder from simply sharing the materials it receives with any third party (including non-stockholders, or indirect beneficial owners, such as the wide groups of individuals who are invested through vehicles like pension funds). Of course, one can also see how this rule could be abused by corporate insiders to limit stockholders’ legitimate uses of the information they receive. The balance seems to place significant pressure on the “reasonableness” standard and presumably will require corporations to base any confidentiality restrictions they impose on a legitimate concern.