For Optional Federal Incorporation
George W. Dent Jr.
Case Western Reserve University School of Law
October 23, 2009
Case Legal Studies Research Paper No. 09-31
The American economy suffers from the domination of corporations by chief executive officers who exercise control for their own benefit, at considerable cost to shareholders and to efficiency. The costs of this defect are rising as capital flees the United States for a growing number of countries that treat investors better. America’s corporate governance problem began and persists because corporations are franchised by the states, and it is in the economic interest of the states (especially Delaware) to cater to CEOS because they control the choice of state of incorporation. To break this destructive arrangement I propose optional federal incorporation with the choice of jurisdiction to be made by shareholders alone. Shareholders are the only constituency whose goal is to maximize share value, and this goal coincides with society’s interest in economic efficiency. Shareholders also have the sophistication to decide major corporate questions wisely. The institution of optional federal incorporation and shareholder choice of jurisdiction of incorporation would trigger a true “race to the top,” a competition to offer the most efficient corporation law.
Number of Pages in PDF File: 25
Keywords: Corporations, Chief Executive Officer, Corporate Governance, Board of Directors, Delaware Corporate Law, Shareholders’ rights, Efficiency, Choice of jurisdiction, Federal Incorporation, Share Value
JEL Classification: K22working papers series
Date posted: October 24, 2009
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