Senate approves changes to Delaware corporate law to clarify director independence and books-and-records rules

DOVER, Del. — The Delaware Senate on March 13 passed Senate Substitute 1 for Senate Bill 21, a package of amendments to the Delaware General Corporation Law that sponsors said are intended to clarify when directors are treated as independent and to tighten the scope of expedited stockholder books-and-records requests.

Senator Townsend, the floor sponsor, said the measure was driven by a series of court decisions and market reactions that, he and supporters argued, had created uncertainty for companies and investors and risked eroding Delaware’s corporate-franchise advantages. "We are trying to return Delaware law to where it was 10 years ago," Professor Lawrence Hammermesh told the chamber, asking lawmakers to view the bill as a course correction.

The bill places statutory emphasis on two core principles: affirming the role of independent decision makers in transactions that present conflicts, and clarifying what documents are properly sought through the narrow, expedited books-and-records process. Under supporters’ descriptions during the hearing, the measure would preserve shareholder protections while making outcomes more predictable for planners and market participants.

Professor Lawrence Hammermesh, identified in testimony as a Delaware lawyer and law professor, said the measure would restore presumptions of director independence and require "substantial and particularized facts" to overcome that presumption. He also told senators the bill is not intended as an effort "to placate Elon Musk," adding that the drafting grew from concerns that predated recent high-profile departures from Delaware.

Srinivas Raju, chair of the Corporation Law Council of the Delaware State Bar Association, said the council reviewed the draft on an accelerated schedule after the bill was introduced and ultimately endorsed a revised version. Raju described several council-driven changes that add procedural and substantive guardrails, including language tying safe-harbor reliance to good-faith actions and preserving the court’s traditional role to apply fiduciary duties where the safe harbors are not met.

Senators asked the witnesses about specifics including the bill’s interaction with the Match Group decision (a recent Delaware Supreme Court ruling), how the legislation would affect public-company proxy and stockholder-vote processes, and whether the measure would protect ordinary investors and pension funds from increased litigation costs. Hammermesh argued the amendments seek to reduce unnecessary litigation expense and uncertainty — a benefit, he said, to investors as well as companies.

Senate Substitute 1 for SB21 also includes a retroactivity clarification: demands for books and records made on or before February 17, 2025, and related 8 Del. C. § 220 proceedings tied to those demands, would be governed by the prior law, not the new provisions. Senator Townsend and Srinivas Raju both described that change as intended to avoid disrupting pending demands and negotiations.

After roughly three hours of testimony and questioning from a large number of senators, the Senate voted to adopt Senate Substitute 1 for Senate Bill 21. The roll call on the substitute was recorded as 20 yes, 1 absent; the presiding officer announced the bill had received the required two-thirds majority. Supporters characterized the vote as a reaffirmation of Delaware’s traditional balance between courts, the legislature and corporate practice.

Votes at a glance: - Consent Calendar No. 5 (Senate Concurrent Resolutions 19, 24, 25 and House Concurrent Resolution 15) — adopted by roll call, 21 yes. (Resolutions: Civic Learning Week; honoring Ireland’s historic role; recognition of Darwin R. Wall; designation of International Women’s Day.) - House Concurrent Resolution 14 (recognizing Ramadan) — adopted by roll call (recorded in transcript as "20 1 yes"). - Senate Substitute No. 1 for Senate Bill 21 (amending Title 8/DGCL on corporate governance and books-and-records) — passed by the Senate, roll call 20 yes, 1 absent.

What the bill does and what remains unsettled Supporters stressed the bill does not eliminate access to documents; it seeks to distinguish records that are properly available to shareholders in the §220 inspection process from broader categories that are ordinarily appropriate only in litigation. The measure also reaffirms that where an independent, disinterested decision-maker process is properly followed, courts should defer to that process rather than substitute judicial business-judgment calls.

Critics (in committee testimony and public commentary) raised concerns about whether the statutory safe harbors could allow inadequate scrutiny of conflicted transactions or allow "best friend" appointments to stand in for independence; witnesses said the measure addresses those concerns by defining disinterest and leaving factual questions to courts. Several senators emphasized the Legislature will continue to monitor the measure’s effects and make further changes if unintended consequences appear.

Next steps and context The Senate approved the substitute version on March 13. If enacted into law following the full legislative process (including any concurrence/votes and the governor’s action), courts and practitioners will begin to test and interpret the new statutory language. Supporters and the Corporation Law Council repeatedly said they expect to continue reviewing practice and to return with technical fixes or clarifications if necessary.

For now, backers described the measure as an effort to preserve Delaware’s standing as a predictable forum for corporate organization and governance while preserving judicial oversight where safe harbors are not satisfied. "Predictability is a critical part of wealth creation," Hammermesh said in his testimony. "That’s what the bill is trying to accomplish."