The Fight for America's Corporate Law Market

A review of the Kelley-ECGI Lecture “Delaware Beware: The Changing Landscape of State Corporate Charters by Professor” by Prof. Anat Alon-Beck on 7th May 2026.

When Elon Musk posted "never incorporate your company in Delaware" to his millions of followers, it was easy to dismiss as one founder's frustration with a court ruling. But as Anat Alon-Beck argued in her recent lecture, Musk's outburst landed on ground that was already unstable, as Delaware is facing a combination of pressures — legal, political, and structural — that the state has not seen since it first took corporate supremacy from New Jersey over a century ago.

The trigger is well known. In 2018, Tesla's board approved a massive compensation package for Musk worth billions of dollars in stock options tied to aggressive performance targets. A shareholder challenged the deal in Delaware's Court of Chancery, arguing that the board was not independent enough and that the approval process was not truly arm's length. The court cancelled the package entirely. The message was clear: even the world's most powerful founder could be held in check by Delaware fiduciary law. Musk's response was to launch a public campaign against Delaware itself — and to move Tesla's incorporation to Texas.

For Alon-Beck, though, the Musk saga is a symptom, not the disease. The real story is about the tension between "shareholder protection governance and founder-centric governance." Delaware's traditional model relies on fiduciary doctrine as a gap-filler: boards and courts keep managerial power in check through process requirements that reduce transaction costs and make outcomes predictable. But a growing class of founder-led firms, many of them technology unicorns, increasingly sees that oversight as a barrier to innovation and freedom of action. The core question is whether "visionary leaders or founders are going to ask and demand for more control over companies without interference from courts."

The empirical picture makes this concrete. Alon-Beck’s multi-year study of unicorn incorporation patterns shows that 97 percent of U.S. unicorn firms are incorporated in Delaware, even though 54 percent are headquartered in California. That number is far higher than the roughly 56 percent rate seen among startups in earlier studies. The reason is mostly institutional: the National Venture Capital Association's model documents default to Delaware, and the law firms advising startups almost always recommend it because of the specialised judges, the predictable case law, and the established deal-structuring practices. Delaware's dominance, in short, is held together by strong network effects and professional habit — "some sort of a lock-in."

But that lock-in may be loosening. The market conditions behind Delaware's position are shifting. Public markets are shrinking: fewer companies are publicly listed, and those that are stay public for shorter periods. Private firms, meanwhile, are staying private for over thirteen years in some cases, raising huge amounts of capital from non-traditional investors. These unicorns are reshaping the corporate landscape in ways Delaware's governance framework was not designed for.

This is where the competition from other states becomes real. Three main challengers stand out. Texas is competing on ideological grounds, positioning itself as founder-friendly, pro-business, and skeptical of activist litigation. But Texas also brings real uncertainty: its constitution allows jury trials in corporate cases, judicial terms are short, and there is no established body of case law to guide practitioners. 

Nevada takes a different approach, competing through stronger liability shields for directors and a less plaintiff-friendly environment. It is essentially selling managerial protection. But that raises clear accountability concerns, especially for public companies with retail shareholders. The open question is whether serious institutional money will accept a jurisdiction where courts are less willing to check fiduciary conduct.

The most original challenger is Wyoming, which is building governance infrastructure for digital assets and decentralised organisations. Rather than copying Delaware, Wyoming is trying to define a new category altogether, one where smart contracts might replace traditional fiduciary enforcement. These developments challenge the "foundational assumptions" of corporate law, raising the question of whether governance can be written in code rather than enforced by judges.

Despite all this competitive noise, actual movement away from Delaware has been limited. Publicly traded firms face high switching costs: reincorporation requires disclosure, shareholder votes, and fiduciary justification. The companies most likely to move are those controlled by founders through dual-class share structures, where activist pressure is structurally blocked. Dell's recent vote to reincorporate in Texas fits this pattern exactly.

Delaware has also responded. Legislative amendments were pushed through under lobbyist pressure even before the state Supreme Court ruled on the contested cases, and the Supreme Court itself found a "middle way", preserving the Chancery's emphasis on process while easing some of the concerns that had worried the corporate bar. 

The wider implications go beyond any single state's franchise revenue. Two additional competitive forces are often missed. First, the federal level: figures like Senator Elizabeth Warren have called for making corporate law a federal matter, and recent changes to SEC proxy rules are already affecting shareholder power in ways that interact with state governance. Second, the international level: jurisdictions like the Cayman Islands attract foreign unicorns — especially Chinese firms — that list on U.S. exchanges but incorporate abroad, creating serious questions about accountability and enforcement when things go wrong.

The lecture made clear that Delaware remains dominant, and that the structural advantages holding it in place are not easily replicated. But it also made clear that the consensus supporting that dominance, built on trust, predictability, and professional habit, is no longer automatic. If founder-controlled firms continue to move and institutional investors accept the trade-offs, what was once a settled question in American corporate law may become an open one again.

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This lecture is part of the Indiana University - ECGI Online Series, a public lecture series on corporate governance. The Kelley School of Business Institute for Corporate Governance (ICG+E), in partnership with Ethical Systems, collaborates with ECGI to deliver this ongoing initiative. As part of this public lecture series, distinguished speakers share insights on the evolving landscape of governance, finance, and market regulation.