Delayering Corporate Law

Abstract:     
Corporate law has become unnecessarily complicated. Despite the proliferation of laws, problems fester and scandals erupt. Something is wrong. This Article seeks to delayer corporate law - to strip it down to its essence - and after doing so, offer concrete suggestions for reform. It is a first step toward a new minimalist architecture for corporate law.

The Article begins by arguing that the core of state corporate law - corporation statutes and fiduciary duties - currently offer precious little protection to shareholders. Contractarianism, manifested through enabling statues, reflects weak economics. Existing fiduciary duties are little more than rhetorical flourish. Rather than reexamine why the core of corporate law is empty, policymakers have instead added a series of layers, most notably securities laws. These reforms, however, merely operate as bandages to recover from the most recent scandal and further obfuscate the hollow core of corporate law.

The bulk of the article offers a fresh path to reform. It draws on emerging paradigms in regulatory theory to argue that substantively, corporate law must reinvigorate fiduciary duties by resetting judicial "standards of review" to match "standards of conduct", while at the same time addressing the behavior of officers, not just directors. Finally, the institutional approach proposed is one of cooperative federalism: the federal government would set minimum standards, but implementation would occur through state courts via a "reverse-Erie" principle.

Keywords: corporate law, federalism, securities law, regulatory theory

JEL Classifications: K22, K23, L51

Accepted Paper Series