Hal Weitzman is a professor at the University of Chicago Booth School of Business and editor-in-chief of the Chicago Booth Review. Before Weitzman came to academia, he was a journalist whose work formed the core of books and book chapters on Latin American prosperity, the development of financial derivatives, and most recently Delaware’s system of corporate governance. The state has about 1.6 million registered companies and just under 1 million residents, Weitzman reports.
What’s the Matter with Delaware? How the First State Has Favored the Rich, Powerful, and Criminal — and How It Costs Us All was credited by the local publication Delaware Call with encouraging an overdue debate. “[The book] shows why Delaware needs to have a public conversation now and regularly into the future about whether to reform aspects of its corporate franchise,” wrote Wilmington-based writer Karl Baker. “We might democratically decide not to. And, that’s OK. But with a public debate, at least we are clear eyed moving forward.”
Washington Examiner magazine interviewed Weitzman by email in early March about billionaire Elon Musk’s decision to pull his SpaceX out of Delaware’s corporate governance, along with a wider view of the state’s corporate history. What follows is an edited version of that exchange.
Washington Examiner: Elon Musk recently moved where SpaceX is incorporated from Delaware to Texas after a Delaware judge voided his Tesla pay package. This was an unusual move for Delaware courts, correct?
Hal Weitzman: Do you mean the decision itself? It’s rare that they strike down a pay package, but it’s not so rare that the Chancery Court takes the side of shareholders against management. It’s happened periodically. Delaware is business-friendly, but that doesn’t mean it always sides with management. If they always ruled against shareholders, shareholders would never go to court in Delaware because they’d assume they would lose. So it’s in the Chancery Court’s interest not to be too predictable, and it isn’t.
Washington Examiner: Do you think Tesla will move its incorporation as well?
Weitzman: My understanding is that Tesla needs a shareholder vote to do so, and Musk has said he wants to hold one.
Washington Examiner: Where on the ideological spectrum are critics of Delaware typically situated?
Weitzman: It depends on the nature of the criticism, but it’s not really a left-right issue. Transparency campaigners tend to be more liberal, but not necessarily. More transparency means markets work more efficiently, so capitalism performs best if information is widely dispersed. And there are national security reasons to improve transparency — anyone, anywhere in the world can set up an anonymous U.S. company with essentially no ID checks. Governance activists aren’t necessarily liberal or conservative either.
Washington Examiner: To back up a bit, you have written the book What’s the Matter with Delaware? How did Delaware end up with more companies registered there than people?
Weitzman: Originally New Jersey was the home of U.S. incorporations. Delaware actually copied New Jersey’s laws, and then New Jersey disavowed the industry in the early 1900s, so it went to neighboring Delaware. Delaware then bolstered its position in the early 1980s by scrapping interest-rate caps for credit cards, allowing the companies to charge usury rates. Nowadays, it makes it extremely easy and convenient to set up a company, and requires minimal documentation. It’s harder to get a library card than to set up an LLC.
Washington Examiner: You write that America’s corporate code is not written in Washington, D.C. Does it tend to surprise people when they learn that?
Weitzman: Those that didn’t know about Delaware are surprised. Those that know are surprised that anyone is surprised.
Washington Examiner: In your book, you write about how Delaware courts typically made it hard for federal agents to pry into companies suspected of drug-related offenses. Has that changed at all?
Weitzman: Not Delaware courts, but the Delaware system of forming companies (run by the Executive branch — the Secretary of State’s Office), which essentially collects no information. What’s changed is that this year, the Corporate Transparency Act comes into effect. Companies have to register with the U.S. federal government, and law enforcement has access to those files. But a court just ruled that the CTA is unconstitutional so the whole thing is up in the air right now. Even if that ruling doesn’t stick, it’s far from clear the registry will work. It depends on interagency cooperation, and places a huge burden on FinCEN, the financial crimes unit of the Treasury, which is grossly understaffed and under-resourced.
Washington Examiner: In your estimation, how much does it matter that President Joe Biden spent so many years as a senator from Delaware?
Weitzman: That’s not what keeps the system going. [Retiring senator and former Democratic Delaware Gov.] Tom Carper played a much bigger role in defending the incorporation industry. In his Senate career, Biden did cast crucial votes in favor of credit card companies (eg, limiting personal bankruptcy) but that is a different issue than incorporations.
Washington Examiner: You were able to write What’s the Matter with Delaware? after you made the jump from journalism, as a reporter for the Financial Times for a number of years, to academia. There are a lot of journalists who are being pushed out currently, by the contracting state of the industry. Do you have any good thoughts for journalists who are trying to figure out where to go next?
Weitzman: Are you asking for a friend? It’s a tough time, but effective reporting, writing, and editing skills will always be in demand in a variety of industries, even in the age of ChatGPT.
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Washington Examiner: The title of your book echoes Thomas Frank’s What’s the Matter with Kansas? Why? And what did you think of that analysis?
Weitzman: Well, Thomas Frank himself borrowed that title structure from a 1970s horror film, What’s the Matter With Helen? starring Shelley Winters and Debbie Reynolds. My title is not in homage to the Frank book (or the horror film). But I think his book is an interesting read and he’s a great writer. A big structural difference is that Frank was writing about Kansas as an example of what was happening across America. My book is focused on Delaware and its global importance in the business world.
