The Policy Foundations of Delaware Corporate Law

Abstract:     
From a first-hand perspective, the author reviews the mechanisms by which Delaware creates its corporate law, and identifies various explanations for Delaware's prominence and its corporate lawmaking ("race" theories, Roe's identification of active or dormant federal power as a limiting influence, and Kahan and Rock's description of "symbiotic federalism"). Although finding support for all of these accounts, the author maintains that none fully expresses the considerations that are actually salient for Delaware corporate law policymakers. The author suggests, rather, that the following considerations are dominant: (1) enhancing flexibility to engage in private ordering, (2) deferring to case-by-case development of the law, and avoiding legislation that is prescriptive and proscriptive, (3) avoiding impairment of preexisting contractual relationships and expectations, and (4) most importantly, avoiding legislative change in the absence of clear and specific practical benefits. Because of the dominance of these considerations, the author suggests that Delaware is unlikely to expand materially the regulation of corporate actors by means of either statutory or common law change. While additional federal regulation of corporate governance will emerge sporadically in response to political crises, any effort by Delaware to anticipate or respond to such additional federal regulation will involve small steps that will not significantly alter the existing allocation of power and authority among corporate constituencies.

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