A not-so-subtle war against certain industries and people highlights a dangerous turn in our economic landscape. Kenny Rogers’s famous lyrics from “The Gambler” offer more than just a catchy tune — they provide timely wisdom: “You’ve got to know when to hold ’em, know when to fold ’em, / Know when to walk away, know when to run.” This month’s ruling in the Delaware Court of Chancery offers another in a long list of reasons that blue states are increasingly unsafe homes for America’s corporations. It might be time for corporations to walk away from blue states.
For over a decade, we’ve seen a steady exodus of corporations from states such as California and New York to more business-friendly alternatives, and we’ve seen high-profile companies such as Tesla and Tripadvisor recently make the decision to transition incorporation jurisdiction away from Delaware.
The reasons given include lower taxes, fewer regulations, and reduced cost of living. But in the past five years, states have used legislation, lawfare, and retirement money to coerce desired outcomes. You would be forgiven for making the observation that business is unwelcome.
This month’s decision in Delaware was shocking. The fact that a plaintiff owning nine shares of a company is able to use the court system to overturn a decision voted on by the board and approved overwhelmingly by shareholders, twice, suggests that Delaware is not interested in staying the incorporation capital of America. It’s important in this case to note that the amount of the pay package withheld from Tesla CEO Elon Musk is not relevant. What is relevant is that a judge in Delaware seems to think she knows how to manage Tesla better than the board and an overwhelming majority of the shareholders.
Chevron’s recent decision to relocate away from California similarly speaks volumes. While Chevron President Andy Walz diplomatically stated, “I will tell you, in Texas, we’re welcome,” the dark reality is that California no longer wants Chevron.
This year, the California legislature considered legislation that would have forced state pensions to divest from all fossil fuel companies. This follows enacted legislation that forced divestment from companies involved in the coal industry.
On top of this, California’s attorney general is pursuing litigation aiming to penalize fossil fuel companies. In filing the lawsuit, Attorney General Rob Bonta’s words leave no room for doubt: “It is time [oil companies] pay to abate the harm they have caused. We will meet the moment and fight tirelessly on behalf of all Californians, in particular those who live in environmental justice communities.” This is happening in a state where more than 100,000 people work in the oil and gas industry.
California is driving away more than the energy sector. The California Policy Center has documented nearly 250 businesses from a wide array of industries fleeing the state since 2020, and it’s extremely costly. According to recently released data from the IRS, California ranks dead last, again, in adjusted gross income between states. In 2022, California lost nearly $24 billion to other states, followed by New York losing $14 billion.
Musk, who moved SpaceX and X to Texas from California, described it as a state of “taxes, overregulation, and litigation.” Musk explained the final straw: “The governor of California just signed a bill causing massive destruction of parental rights and putting children at risk for permanent damage.” He added that this legislation was “attacking both families and companies.”
New York is facing a similar exodus. Bloomberg reports that since 2020, 158 financial firms with nearly $1 trillion of assets under management have relocated away from New York. Stated reasons for these departures are taxes, regulations, and crime. Just this summer, the New York Post reported that rapes were up 11% year-over-year.
It’s not a stretch to imagine the hostile and deeply politicized state and city governments of New York are partially to blame. And lawfare against political figures who run businesses in the state and face egregious legal judgments designed to financially cripple them personally certainly sends a strong message.
New York City recently bullied J.P. Morgan and CitiBank, both of which are headquartered there, into providing greater climate disclosure of their activities, following a spate of activist shareholder resolutions by New York City pension funds.
New York has politicized the state’s pension funds as well, voting against Best Buy’s chairman in July because he was insufficiently compliant with their views on social issues.
The New York State Common Retirement Fund voted earlier this year against Exxon Mobil’s board of directors because it decided to seek legal action to stop activists’ value-destroying shareholder resolutions.
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These are extraordinary government actions aimed at coercing companies into compliance with political agendas and are harmful to shareholder value, the standard against which fiduciary decisions should be based. The same pattern is unfolding in Illinois, Massachusetts, Washington, and Oregon, where similar forces are driving out businesses.
By all appearances, these trends are escalating. I commend the many companies that have taken a stand and relocated. Now is the time to heed Rogers’s advice to fold ‘em and move to a state that welcomes your business, welcomes your industry, and will actively support your growth. Don’t wait until the situation forces you to run.
Glenn Hegar is the 36th comptroller of Texas. Elected in November 2014, Hegar strongly advocates job growth and greater diversification of the Texas economy.
This article was originally published at www.washingtonexaminer.com
