EXCLUSIVE'Delaware is dangerous for corporate America': CEO who battled state's 'archaic' Chancery Court for a decade backs Elon Musk's vow to leave and says ALL companies should move
https://www.dailymail.co.uk/news/article-13056743/delaware-corporate-america-ceo-chancery-court-elon-musk.html
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TransPerfect CEO Phil Shawe is a longstanding critic of Delaware's court
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Court ordered his company to be sold after a legal dispute with the co-founder
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Now Shawe is backing Elon Musk's call for companies to leave Delaware
Few businessmen understand the arcane details of Delaware's Chancery Court system like Phil Shawe, the CEO of translation and language services firm TransPerfect.
For nearly a decade, Shawe has been mired in Delaware's specialized business court system, which is in the spotlight after a judge there voided Tesla CEO Elon Musk's record $55 billion pay package last week.
Musk responded by vowing to hold a shareholder vote to move Tesla's incorporation to Texas, where the company has its physical headquarters, fuming in a post on X: 'Never incorporate your company in the state of Delaware.'
Shawe, who reincorporated TransPerfect in Nevada after facing his own infamous court decision in Delaware, told DailyMail.com in a recent phone interview that he agrees with Musk, and believes no business is wise to remain in the Blue Hen State.
'I was taught in business school that a Delaware corporation was the gold standard, but I think that's changing,' said Shawe. 'This is a really archaic system that is dangerous for corporate America.'
Although he moved TransPerfect's incorporation to Nevada in 2018, Shawe is still tangled in litigation in Delaware, primarily related to attorneys fees.
'Get out of the tentacles of Delaware jurisdiction as soon as possible,' he warned. 'Because this is their industry, like gambling is to Nevada or timber is to Maine — this is their industry, and they they know how to keep the revenue stream going.'
Although it sounds like something from the pages of a Charles Dickens novel, Delaware's Chancery Court long played a role in attracting businesses to the state, with the promise of speedy resolution for complex business disputes.
Originally, New Jersey was known as America's top corporate haven, thanks to laws in the state that limited the liability of officers and directors.
In the early 20th century, New Jersey repealed those protections, and companies fled to Delaware, which was one of the few other states at the time that allowed corporations to form without a special act of the legislature.
Ever since, Delaware has reigned supreme as the destination for incorporation, with two-thirds of the Fortune 500 filing there, in part due to the appeal of its specialized commercial litigation system.
Delaware's Chancery Court does not use juries, and the judges who decide its cases, known as chancellors, have typically spent their entire careers in corporate litigation.
Few other states have a separate court system devoted specifically to equity law, meaning that complex shareholder lawsuits could end up in front of judges who hear all manner of cases, and be decided by juries of laypersons.
Corporations and their executives tend to find reassurance in Delaware's well-developed body of case law, which offers guidance as to what actions and decisions will hold up against lawsuits.
But Shawe argues that apparent feature of Delaware's system is actually a bug.
'In reality, having all that case law just gives the chancellor a broad brush to do whatever they want,' he said.
'They'll tell a legal clerk, "Go find me a case that supports this position." And because they have a large body of case law they can pretty much do whatever they want.'
>Delaware
>tentacles
>dangerous
>archaic system (rigged)
Shawe argues that Delaware's Chancery Court suffers from levels of insularity and cronyism that should be red flags to companies who do business there.
'If you want to win in Delaware, it's a very small, insular community, and in a community like this, there's a lot of favor trading,' he said.