Delaware lawmakers are being pressured to pass SB 21, a bill that would weaken shareholder protections and reduce judicial oversight of corporations. Alan Jagolinzer, Stephan Lewandowsky and Sander van der Linden argue that the narratives supporting the bill are based on a disinformation campaign led by powerful insiders who stand to benefit at the expense of minority investors.
Delaware lawmakers have only a few days left to decide whether to pass Senate Bill (SB) 21, a state law proposal which is set to materially reduce shareholder and judicial governance of the numerous firms incorporated in Delaware. The bill would enshrine legal protections for controlling shareholders and other corporate insiders, and potentially render them “immune from liability.”
The bill was introduced suddenly, and lawmakers were given fewer than 30 days to consider the bill before being asked to vote on it. The hasty timeline is in response to perceptions of “urgency to protect the state of Delaware and not have these other states swoop in and take our companies that love practicing here in Delaware,” according to one of the bill’s sponsors. Our question for the legislators and Governor is: Can they trust the information that feeds the perception of urgency, or are they at risk of falling prey to a manipulative campaign designed to fool them into surrendering constituents’ governance rights?
We assess whether the messaging aimed to influence their votes is intentionally crafted by those who seek to benefit from being misleading. Our analysis indicates that the popular narratives advanced by supporters of SB 21 are easily debunked, hyperbolic, and deploy common tactics seen across disinformation campaigns. We infer that Delaware’s elected officials are being targeted by a disinformation campaign that may persuade them to endanger Delaware’s corporate law franchise and eliminate important investor rights with few benefits in return. We conclude that the manufactured perception of urgency has been seeded by many who stand to profit and gain influence if the bill is signed into law, seemingly at the expense of other corporate stakeholders.
A typical disinformation campaign will have six elements: 1) messengers, 2) incentives, 3) intentionally misleading narratives, 4) selected communications channels, 5) targeted audience, and 6) audience exploitation. Disinformation campaigns are commonly used to create uncertainty, sow confusion, or induce fear all of which can help groom audiences to willingly surrender power.
In this case, we recommend legislators form an independent assessment of whether to trust the narratives, by (a) examining the messengers’ incentives, (b) examining narrative credibility, and (c) examining the potential harm to their constituents.
Messenger Credibility
The messengers of the campaign to reincorporate outside of Delaware include billionaire tech CEOs Elon Musk, Mark Zuckerberg, politically aligned lawmakers, and their paid affiliates. These messengers have considerable lobbying power with direct control over global dissemination platforms that influence public discourse on government policy issues and direct access to, and favored status with, well-connected politicians.
The clearest incentives of these messengers appear to be to reduce or eliminate oversight and scrutiny by Delaware courts. Zuckerberg reportedly wants to minimize future legal accountability. Musk is upset about an adverse court ruling that denied him a $56B payout. The incentives seem to align with these billionaires’ larger agenda to override regulatory or judicial oversight in other jurisdictions.
False Narratives
The messengers deploy a few common narrative themes to influence the SB21 vote. The most common theme conveys fear of mass business exodus from Delaware if the Bill does not pass.
- “Companies are flooding out of Delaware.”
- “Pretty soon there won’t be any companies left in Delaware.”
- “Businesses are fleeing Delaware, and if we don’t move fast, they’re gone for good. This isn’t a warning; it’s a five-alarm crisis.”
These narratives, however, are unsubstantiated. First, the state of incorporation is not the same as the state of operations. When a company chooses a state of incorporation, it makes the choice about which state laws to apply. The company is not deciding where to locate operations, employees, or sales. For example, over 2 million businesses are incorporated in Delaware, but many operate across the country and even internationally.
Second, in 2024, Delaware reported a net gain of 85 new public corporations, and a net gain of over 250,000 new private businesses. Only eight public companies, including one of Musk’s, reincorporated from Delaware in 2024: Dropbox, Viewbix, PMGC Holdings, Trade Desk, Pamt Corp, Cannae Holdings, Tesla, and Channel Therapeutics. The data categorically reject the idea that a large number of companies are deciding to reincorporate.
Another false narrative is that companies are reincorporating outside of Delaware to escape a Delaware judiciary that does not “respect shareholders’ rights.”
Yet neither Musk, nor Zuckerberg, appears to have respect for other shareholders’ rights, based on Musk’s efforts to obtain dual-class shares for Tesla and Zuckerberg’s complete control of Meta.
In reality, it is the proposed Bill that harms shareholders rights. Legal scholars argue that SB21 will overturn at least 34 existing state supreme court rulings. They also suggest that the proposed amendments greatly limit the rights of minority investors. For example, the proposed amendments would significantly reduce judicial review of transactions affected by conflicts of interest, thus opening the door to the potential for self-dealing, e.g., paying themselves excessive compensation. The bill would also heighten the presumption of independence for directors, which would make it harder for a stockholder to challenge a committee’s independence. It also limits the books and records that can be inspected by stockholders for review. One scholar even suggests that the proposed amendments fundamentally eliminate shareholders’ litigation rights entirely.
A final theme, which may be the most salient to the legislators and Governor, are easily debunked claims of significant state revenue loss if the bill does not pass.
- “The Delaware Democrats actions amount to economic sabotage.”
- “If one in 10 of our 1.8 million businesses bails – 180,000 entities – we’re staring at disaster. Hundreds of millions in revenue vanish.”
- “Picture Main Street with more empty storefronts than customers. That’s what losing 180,000 businesses brings.”
The notion that voting against the bill equates to economic sabotage is unsubstantiated and hyperbolic. In fact, consumer and investor protection groups suggest that passing the bill will financially harm working-class shareholders.
There is no evidence that Delaware will lose operational business revenue if the bill does not pass. Reincorporating elsewhere is fundamentally a paper exercise. It would make little sense to cease business operations, assuming standard economic conditions. Tesla, for example, has no incentive to stop selling cars in Delaware and is still operating dealerships in the state.
There is no evidence that Delaware will lose significant franchise tax revenue if the bill does not pass. The franchise tax is capped at $250,000 per corporation per year for larger corporations. This means that Delaware will lose only $2 million in franchise tax per year for the eight corporations that left in 2024. Importantly, this loss is more than offset by the addition of 85 additional publicly traded companies.
Dissemination And Amplification Of False Narratives
There are at least two interesting dissemination channels for these narratives.
Musk pushed many narratives on his primary platform, X, formerly Twitter. Because he controls this platform, he can amplify the message, stoke anxiety and fear, and shade comments he dislikes.
Some law firms added narratives in their broader discussions about the implications of the bill. Wilson Sonsini for example, wrote about the potential impact in its client advisories. Their advisory highlighted concerns about “a perception that Delaware judges have in several opinions adopted an increasingly suspicious or negative tone toward corporate boards and management.” What the firm did not acknowledge however, is that it is their own clients who are formulating these perceptions with the narratives we assess here. Wilson Sonsini has engaged legal work for Musk’s companies and Zuckerberg, including advising on Musk’s proposal to take Tesla private. These ties may imply a narrative laundering role.
The bill was introduced, and the influencer campaign was launched, at the same time that Musk was given unprecedented power over federal government institutions and right after the brand new Governor was sworn in, and hence vulnerable to undue influence.
The narratives also conform to common disinformation tactics seen in other settings, including:
- Rage-farming: stoking excess or unsubstantiated fear to advance an agenda, such as the false notion that there is a “five alarm crisis.”
- Conflation: confusing or blending two different concepts, to enable misrepresentation. In this context, the narratives conflate the loss of incorporation status, which is fundamentally a paperwork exercise, with the loss of an entire business operation and associated jobs, which is extremely unlikely to occur. From this conflation, they further conflate a trivial loss of franchise tax revenue with a make-believe and exaggerated business revenue loss.
- False dilemma: A logical fallacy where the messenger inappropriately suggests there are only this-or-that choices. In this context, Musk fallaciously suggests that any lawyer who recommends incorporating in Delaware is inherently committing malpractice. The fallacy implies that there is only the “bad” choice of Delaware or the “good” choice of any other state. However, many leading law firms agree that Delaware serves as the “gold standard,” even in the absence of SB 21.
Fundamentally, the narratives lack substance and appear to cloak a strategy to usurp power from minority shareholders in dubious claims about protecting Delaware businesses.
Delaware’s elected officials should also consider that passing SB21 offers little guarantee that companies will remain incorporated in the state or that the messengers will be placated. In an environment where some perceive there is value to virtue-signaling, messengers, including Musk, may still reincorporate elsewhere and continue to “rage-farm” against the Delaware government and judiciary. SB 21 is unlikely to placate these messengers but seems certain to harm minority shareholders.
The legislature and Governor have a duty to the people of Delaware. This duty requires a truly independent assessment of lobbyists’ incentives and the credibility of their narratives. It is hard to suggest they met this duty if they rely on artificial and unfounded ‘crisis’ narratives pushed by billionaires who stand to profit most from the legislation.
Author disclosures: Sander van der Linden has given many keynote lectures and gives talks and consults regularly about his research for the public, industry, and government, including venues such as the World Health Organization (WHO), National Academy of Science (NAS), The Hay Festival, Behavioural Insights Team, the BBC, Microsoft, Bank of England, the World Bank, Edelman, Festival of Ideas, United Nations, WhatsApp/Meta, TEDx, Google, UK Cabinet/Foreign Office, EU Commission, and the US State/Defense Department.
Stephan Lewandowski’s full disclosures can be found here.
Alan Jagolinzer is an advisor to Bellingcat and has offered expert witness opinions in securities class action litigation, but none that relate to companies named here. He has given talks about information risks to UK pension fund managers and board members. He has no direct (non mutual fund or ETF) financial interests in Tesla, Meta, or any of the named companies.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
