My last several posts have discussed the current debate on the phenomenon referred to as "DExit", which refers to Delaware corporations that choose to reincorporate in other states. In a recent article, Professor Bainbridge remains sanguine about Delaware's ability to retain its corporations.
Much less has been written about the exodus of corporations from California. This may be largely due to the fact that many publicly traded corporations reincorporated (or incorporated) in Delaware years ago. Even though these corporations chose Delaware as their state of incorporation, they continued to maintain their headquarters in California.
Now, many of these corporations are choosing to move their physical headquarters to other states. Last Friday, for example, Chevron Corporation announced the relocation of its headquarters from San Ramon, California to Houston, Texas. It was also reported that Elon Musk will be moving the headquarters of SpaceX and X from California to Texas. Other large companies that have relocated headquarters from California include Oracle Corporation and CBRE.
Chevron's announcement did not provide a reason for its departure, but one might speculate that California's hostility to fossil fuels and business in general influenced the decision. Mr. Musk cited opposition to AB 1955 as the "final straw". That law prohibits school districts from enacting or enforcing any policy, rule, or administrative regulation that requires an employee or a contractor to disclose any information related to a pupil’s sexual orientation, gender identity, or gender expression to any other person without the pupil’s consent unless otherwise required by law.
While the relocation of corporate headquarters does not mean that these corporations are closing all of their operations in California, these moves will be extremely deleterious to the state. California loses not only the income tax revenues from highly paid executives, it loses the infrastructure that supports headquarters operations, including lawyers, accountants and other advisors. The state also loses the intangible benefit of a vibrant and growing business environment that spawns spin-offs and innovation.
The size of California's economy has allowed it to shrug off the occasional departure of a major corporation. As more companies leave the state, however, the center of gravity is shifting and California could enter into a "death spiral" in which each corporate relocation feeds additional relocations.
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