Delaware lawmakers recently rushed out proposed changes to the state’s time-tested corporate law, claiming that the risk that companies will leave Delaware demands an “urgen[t]” vote this month. We know now that the bill, S.B. 21, was written by Elon Musk’s lawyers.

I’m a fourth-generation Delawarean who teaches at The Wharton School at the University of Pennsylvania; I study economic incentives for a living. Make no mistake: There is no crisis of companies leaving Delaware. To see why lawyers manufactured one, all you have to do is follow the money.

For a century, Delaware’s corporate law has been the envy of the world. That’s why over two-thirds of Fortune 500 companies are incorporated in the First State. They mostly don’t operate there or pay Delaware income tax. Instead, they pay a franchise fee to use the state’s corporate law. Last year Delaware collected $1.3 billion in franchise fees; the maximum per company is $250,000. By comparison, Delaware’s total revenue last year was over $7 billion.

That’s why I was surprised when those behind S.B. 21 said that “Delaware’s 0% sales tax” and plans to “increase[e] teacher pay” and give “tax breaks to hardworking Delawareans” were at risk because “companies feel forced to relocate” out of Delaware, with one S.B. 21 sponsor claiming that every “major company that leaves here is $250,000 out of the state’s annual budget, so that’s tremendous.” No, it’s not.

Each company that incorporates elsewhere reduces the budget by just 0.0036 percent, and since most Delaware corporations have no employees in the state, Delawareans’ jobs are unaffected. For there to be a real effect on actual Delawareans, hundreds of companies would have to leave.

So I dug into the data to find out how many publicly traded companies recently reincorporated out of Delaware. The answer is eight – not 8,000, not 800, just eight. In fact, state records show that in 2024 the number of Delaware-registered companies grew by over 275,000, and Delaware had a net gain of 85 publicly traded companies. In 2024, 80 percent of all newly public companies were incorporated in Delaware. These findings echo the analysis of corporate-law scholar Stephen Bainbridge – there is simply no evidence of a “DExit”.

Like many Delawareans, when I find out that someone tried to sell me a bill of goods, my next question is: Who benefits from their story? For S.B. 21, the answer is clear: Corporate lawyers created a crisis they can get paid to fix. Musk’s lawyers lost when Delaware judges made their client obey the law like the rest of us. S.B. 21, which makes Delaware law more friendly to Musk-style corporate controllers, lets them claim victory. Others who advised on S.B. 21, like Delaware’s former chief justice and chancellor, now work for Wachtell Lipton and Wilson Sonsini. Both of these firms regularly represent corporate controllers with cases before Delaware courts, so it’s no surprise that S.B. 21 provides a pathway for their clients to be “immune from liability.”

Apparently, Delaware lacks conflict-of-interest laws to prevent lawyers from advising on pending legislation that would directly benefit their firm’s clients. And the firms apparently have no internal policies banning the practice. But maybe that is the business model. Can’t win in court? Just blame the judges and change the law.

In economics, we refer to these conflicting incentives – the incentives of individuals who leave government service and then seek to monetize their distinguished public service record and associated political connections – as the “revolving door.” Many economists have long contended that this practice can lead to “crony capitalism.”

As if these economic conflicts were not enough, S.B. 21 is being rushed through the Delaware legislature. The bill bypassed the normal process and was swiftly introduced for a vote with less than 30 days’ notice in the Delaware Senate.  This speed is at odds with the bill’s controversial nature. For example, legal scholars suggest that the bill, if adopted, would overrule almost 40 Delaware Supreme Court decisions.

I’m not a lawyer, but I do have common sense, and the way lawyers talk about S.B. 21 says plenty. Sometimes supporters tell us that the bill will save us from the “historic circumstances” we face with companies leaving Delaware.  Those same attorneys then say that all the bill does is enshrine legal “principles that have been in place for a long time.” Either S.B. 21 makes significant change that we need urgently, or it doesn’t change Delaware law enough to matter. Which is it?

What really insults me as a Delawarean, though, is that supporters of S.B. 21 are threatening the state’s basic needs if they don’t get what they want. All of us want tax breaks for hardworking citizens and for kids to have good teachers. The people of Delaware deserve that, regardless of whether S.B. 21 passes this month. It’s one thing for the lawyers supporting S.B. 21 to invent a crisis so they can change the law to advantage their clients. It’s entirely another to threaten kids’ education and working families’ finances if their corporate clients don’t get the sweeping legal protections that they want.

I love Delaware, and I want the best for its people. The citizens of the First State deserve better than S.B. 21. I am not opposed to changes in the law. But why not take a slower, more deliberative approach? Why not consult a broader constituency that includes the pension funds, unions, and institutional investors whose rights are being eroded by S.B. 21? Why not take the time to get the law right and balance the competing needs of various groups?

There is zero evidence of any crisis of reincorporation, let alone one that would put the people of Delaware at risk. Rather than ram through a corporate-lawyer wish list that benefits their clients, I hope Delaware’s Legislature and new governor will stop to ask whether this is the most “urgent” thing they need to do for the people of Delaware.

This post comes to us from Daniel Taylor, the Arthur Andersen Chaired Professor at The Wharton School and director of the Wharton Forensic Analytics Lab, who has served as an economic expert in the Delaware Court of Chancery. It is based on an op-ed piece he wrote for the Delaware Business Times.