Delaware, the nation’s most influential state for corporate governance, has enacted Senate Bill 21 (SB 21), reshaping how companies handle transactions involving conflicts of interest. The legislation, which took effect this year, marks a significant departure from decades of legal precedent by easing the safeguards that once defined conflicted corporate deals.
Previously, Delaware law—guided by court decisions such as Kahn v. M&F Worldwide and reaffirmed by In re Match Group—required that both an independent board committee and a majority of minority shareholders approve conflicted transactions in order to insulate them from fiduciary breach claims. SB 21 now reduces that requirement, stipulating that only one of these approvals is necessary. In practice, this means that companies can move forward if either a majority of disinterested directors or informed minority shareholders sign off, without needing both.
The bill also relaxes the independence standard for special committees tasked with reviewing conflicted deals. Where full independence was once required, SB 21 now allows committees to move forward with only a majority of members deemed independent. Additionally, the law narrows shareholder access to corporate books and records under Section 220, limiting the scope of documents that shareholders can demand when investigating management decisions.
Proponents of SB 21 argue that the reform restores efficiency and clarity to Delaware’s corporate framework. They note that requiring both shareholder and director approval had created unnecessary litigation risks and slowed deal-making. With competition from other states such as Texas and Nevada, where incorporation laws are less stringent, backers of the bill see this change as vital to maintaining Delaware’s preeminence as the corporate capital of the United States.
Yet the reform has sparked strong criticism from shareholder advocates and governance watchdogs. The Council of Institutional Investors and other critics warn that SB 21 weakens traditional protections for minority investors and could tilt the balance of power further toward company insiders. By lowering the bar for conflicted transactions, they argue, Delaware risks undermining the consistency of its judicial oversight and eroding trust in its corporate governance regime.
Concerns have also been raised about the legislative process itself. Historically, corporate law changes in Delaware have been developed through the state’s Corporation Law Council, which brings together a broad set of stakeholders for review before drafting legislation. In the case of SB 21, however, critics allege that the process was expedited, with meaningful input from the council coming only after the bill’s initial framework was already in place. This unusual sequence has fueled perceptions that the law was crafted with corporate insiders in mind, rather than with balanced consideration of shareholder interests.
Legal challenges are already underway. One lawsuit contends that SB 21 undermines the Delaware Court of Chancery’s authority, encroaching on its long-standing role in interpreting fiduciary duty and maintaining judicial consistency in corporate law. If these challenges succeed, they could reshape not only the scope of SB 21 but also Delaware’s approach to corporate lawmaking more broadly.
The stakes are high. Delaware is home to more than two-thirds of Fortune 500 companies, and changes to its corporate law reverberate far beyond state borders. By recalibrating the safeguards around conflicted transactions, SB 21 has set off a debate about whether Delaware is strengthening its role as a flexible and business-friendly jurisdiction or jeopardizing its reputation as a trusted arbiter of corporate governance.
For now, the passage of SB 21 represents a pivotal moment in the state’s legal and economic identity. It underscores the tension between efficiency and accountability, between the speed of deal-making and the protections afforded to minority shareholders. Whether the law ultimately fortifies Delaware’s dominance or weakens the trust that has long underpinned its corporate court system remains to be seen, but its passage ensures that the conversation over the future of corporate governance will remain both active and contentious.
Read Also: https://jurisreview.com/delawares-sb-21-law-and-federal-transparency-rules-redefine/
