Christina M. Sautter writes that the passage of Senate Bill 21, which rebalances power away from shareholders to corporate management, represents a 150-year-long development in corporate law spurred by regulatory capture that has removed countless restrictions on firm behavior.
On March 26, the Delaware legislature passed Senate Bill 21 (SB21), limiting shareholder access to corporate records and moving the goalpost for director disinterestedness to avoid court scrutiny of what were long considered conflicted transactions. The bill, which had been hurriedly crafted in urgent weekend meetings in the weeks before, was a reaction to the Delaware Supreme Court’s decision in Match, which held that controlling shareholder transactions were subject to entire fairness review, with limited exceptions. Also playing a role were a chain of Delaware Court of Chancery decisions ruling against corporate management in favor of shareholders. Additionally, SB21 proponents’ rhetoric pointed to Tesla’s exodus from Delaware to Texas and to the threat of more firms’ reincorporations to other states, including, most notably, from Meta. However, the potential loss of corporate franchise taxes was minimal, with fees capped at $250,000 per year per company. Many corporate governance experts were stunned at SB21’s swift development and adoption. But they should not have been.
SB21 is not just a reaction to recent Delaware court decisions and to the potential loss of a minimal amount of corporate franchise taxes. It is yet another milestone in the United States’s centuries-old evolution in corporate law. This evolution has been marked by both regulatory capture—corporations gaining control over the institutions meant to regulate them—and regulatory arbitrage—the practice of exploiting differences in regulatory environments—that began in the Gilded Age with robber barons like John D. Rockefeller and J.P. Morgan. It is an evolution which has enabled corporations to grow significantly in size and to dominate not just the industries in which they operate but to also heavily influence state and federal government. To forget this history is to ignore valuable lessons for the path that corporate law is on and its impact on everyday citizens for generations to come.
The original architects of corporate dominance
In the 1800s, corporations operated with significantly more restrictions than today. These restrictions included a prohibition on corporations owning the stock of other corporations. This meant that holding companies were forbidden as were many mergers and acquisitions, creating an impediment to control and expansion for the likes of Rockefeller and the Standard Oil Company. The transformation of corporate law began with Samuel Calvin Tait Dodd, the general counsel for Standard Oil, who devised a remedy relying on trust law. In 1882, the Standard Oil Trust was born. It held 100% of the stock of fourteen companies, held controlling interests in twenty-six more companies, and was governed by a board of nine trustees including Rockefeller himself.
The transformation of corporate law continued with lawyers like Wall Street attorney James Brooks Dill and William Nelson Cromwell. Cromwell was a co-founder of Sullivan & Cromwell LLP, which served as legal counsel to J.P. Morgan in his formation of Edison General Electric Company in 1882 and United States Steel Corporation in 1901. These legal architects recognized that corporate law could be utilized to create massive business empires, and they worked hand-in-glove with industry titans to systematically dismantle the barriers that had previously constrained corporate growth.
Dill engineered perhaps the most consequential regulatory capture in American history. In the 1890s, he approached New Jersey Governor Leon Abbett with a scheme that would prove transformative: liberalize the state’s corporate code to attract incorporation business, generating substantial revenue through fees and franchise taxes. To facilitate this operation, Dill founded the Corporation Trust Company of New Jersey and brought in key politicians as investors and board members, including Abbett, the New Jersey secretary of state, and the Democratic State Committee chairman.
The fruits of this collaboration were extraordinary. By 1896, New Jersey had completely overhauled its corporate laws, removing virtually all restrictions on corporate structure and activity. The state eliminated time limits on corporate charters and allowed corporations to engage in any business they pursued. But perhaps most importantly, New Jersey explicitly permitted corporations to own shares in other corporations, effectively legalizing holding companies and making the trust structure unnecessary.
The birth of modern corporate power
This legal innovation in New Jersey had immediate and profound consequences and earned New Jersey the moniker the “Mother of Trusts.” As one observer noted, “After the passage of the New Jersey Act, the entire expenses of the state of New Jersey were paid out of corporation fees.” By 1902, New Jersey had earned so much from corporate fees that it paid off the state debt and abolished property taxes entirely.
The scale of corporate consolidation enabled by these legal changes was staggering. Between 1895 and 1904, over 1,800 manufacturing firms disappeared through mergers, with the resulting consolidated firms controlling market shares exceeding 40% in half of the cases and over 70% in at least one-third of the cases. New Jersey charters represented more than 60% of these firm disappearances and nearly 80% of their total capitalization.
Rockefeller’s Standard Oil and Morgan’s U.S. Steel were among the beneficiaries, along with other giants like American Sugar Refining Corporation and Amalgamated Copper. These industry giants all bore New Jersey charters, demonstrating how regulatory capture enabled the concentration of economic power on an unprecedented scale.
The competitive race to the bottom
New Jersey’s success triggered what scholars now recognize as the first great “race to the bottom” in corporate law. Delaware, recognizing the lucrative opportunities, adopted New Jersey’s liberal statutes almost verbatim in 1899. This represented a fundamental shift from the earlier era when state legislatures maintained strict control over corporate privileges through special charters.
In early 1913, New Jersey reversed course. Just months before being inaugurated as president of the United States, New Jersey Governor Woodrow Wilson pushed through the Seven Sisters Acts. The acts outlawed monopolistic practices, price fixing, and corporate stock holding arrangements. Corporate lawyers and their clients, becoming concerned about the anti-corporate climate in New Jersey, simply moved to Delaware. As Lawrence Friedman observed in his influential book, A History of American Law, “[c]orporations flocked to Delaware, and the phrase ‘Delaware corporation’ passed into the English language.” This shift from pressuring legislators behind closed doors—already limiting democratic participation by other constituents—to exploiting interstate competition (i.e., regulatory arbitrage) further fundamentally altered the balance of power between states and corporations.
Same power, new players
The parallels between today’s tech titans and the robber barons of the Gilded Age are striking. Like Rockefeller and Morgan before them, Elon Musk and Mark Zuckerberg have leveraged corporate structures to build vast business empires that dominate multiple industries. Musk’s empire spans electric vehicles, space exploration, social media, and tunneling, while Zuckerberg’s Meta controls multiple social media platforms reaching billions globally.
Most significantly, both Musk and Zuckerberg have demonstrated the same willingness to use regulatory arbitrage that characterized their historical predecessors. When Delaware’s Court of Chancery ruled against Musk’s $56 billion Tesla pay package in 2024, he immediately sought to reincorporate Tesla in Texas, declaring on X: “Never incorporate your company in the state of Delaware.”
On February 1, 2025, one day after the Wall Street Journal reported that Meta was considering following Tesla’s lead, Delaware Governor Matt Meyer convened urgent meetings with corporate lawyers who had represented both Musk and Zuckerberg. The resulting SB21 legislation was crafted with remarkable speed, demonstrating how modern corporate power can still bend state policy to its will.
Regulatory capture in the digital age
The passage of SB21 reveals regulatory capture operating with the same efficiency that characterized Dill’s interactions with New Jersey officials over a century ago. Records obtained by CNBC show that the February 2025 meetings in Delaware included not only state officials but also attorneys from law firms representing Meta, Musk, and Tesla. The bill’s authors included attorneys from corporate defense firms that count Musk and Tesla as clients, along with former Delaware judges now working for corporate law firms.
This revolving door between corporations, corporate law firms, and the government mirrors the historical pattern where lawyers like Dill simultaneously served corporate clients while crafting the very laws that would benefit those clients. However, now they are aided by lobbyists, including those hired by corporate defense firms like Richards Layton Finger, who previously defended Musk, and by the American Investment Council, which is in turn funded by private equity. The result, now as 150 years ago, is legislation that prioritizes corporate interests over broader public concerns.
SB21’s provisions represent the same kind of pro-management, anti-oversight reforms that characterized New Jersey’s original corporate liberalization. The legislation weakens investor protections and, like its historical precedents, concentrates power in the hands of controlling shareholders.
The perpetual dance of power
What emerges from this historical analysis is a clear pattern: corporate power and state authority exist in a perpetual dance, with corporations consistently using their economic leverage to shape the very laws that govern them. The robber barons and their lawyers did not just build industrial empires; they fundamentally restructured the legal framework of American capitalism to ensure that concentrated corporate power would become not just possible, but inevitable.
Today’s tech titans operate within this inherited framework, using the same tools of regulatory arbitrage and capture that their predecessors pioneered. The speed with which Delaware responded to the threat of corporate exodus demonstrates that the balance of power remains tilted toward large corporations capable of credibly threatening to take their business elsewhere.
The implications extend far beyond corporate law. As corporations have grown to massive sizes—enabled by the legal structures created over a century ago—they have gained the resources and incentives to influence not just state incorporation law, but federal policy as well. The concentration of wealth and power that began with the robber barons has created corporate entities with the capability to shape democracy itself.
The stakes for American democracy
The corporate governance system that emerged from this century-long evolution poses fundamental challenges to democratic society. Corporations wield enormous influence over politics, the economy, and daily life. Yet as I write with my co-authors in a forthcoming paper, “The Shareholder Democracy Lie,” corporations systematically exclude the ultimate beneficial owners of their shares—the everyday citizen—from their governance. Citizens bear the costs of corporate decisions—environmental damage, political lobbying, workplace policies—without meaningful input into those decisions.
SB21 represents more than a simple legislative response to corporate pressure: it is the latest chapter in a story where state governments compete to serve corporate interests while ordinary citizens remain on the sidelines. In this same chapter, on May 19, 2025, Texas passed Senate Bill 1057 (SB 1057), dramatically increasing the barriers for shareholder proposals “at certain Texas-based public companies.” SB 1057 echoes the Business Roundtable’s 2017 “modernization” proposals, which were submitted to the White House and incorporated into the ultimately unsuccessful Financial CHOICE Act, seeking to raise shareholder proposal thresholds. As Meta, Tesla, and other corporate giants negotiate directly with state governments over the rules that will govern them, the question becomes: who really controls whom in the relationship between corporations and the state?
The goal of elected representatives should be to serve the public interest, but when elected representatives are concerned with reelection, when representatives are subject to intense lobbying without examining underlying motives, and when corporations directly participate in crafting legislation like SB21, the regulatory capture cycle continues. This raises profound questions about whether corporate governance reform can occur within existing structures. Currently, these corporations answer primarily to their largest shareholders and management while the diverse American population affected by corporate power has no mechanism to influence these decisions. More fundamental reforms may be needed to ensure corporations are accountable to the diverse population they affect.
Author Disclosure: The author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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