Recent Skirmishes in the Battle Over Corporate Voting and Governance

Abstract:     
This paper considers how some recent developments affect our understanding of the relative superiority of our mixed federal system of corporate lawmaking as compared with either a purely state system or a purely national one. The mixed federal system can potentially capture the gains of efficiency, flexibility, and responsiveness from state competition, while using the threat, and occasional reality, of federal intervention to reduce the tendency to managerialism of Delaware. The paper argues that on the whole this story fits the reaction to the corporate scandals of the nineties. The Sarbanes-Oxley Act moved regulation in a less managerialist direction, and Delaware courts have responded, albeit subtly.

The paper also considers evidence for counter-stories. It may be that federal intervention has gone too far, and led to a worse outcome than the states on their own would have achieved. Some claim that Sarbanes-Oxley is an example of such federal over-reach. That might be true, but the evidence to date does not clearly support such a conclusion. On the other side, the ongoing leading role of Delaware in corporate lawmaking might be inhibiting the system from reacting as well as a purely national system would. The paper considers this possibility in the context of developments in the regulation of shareholder access to corporate proxy material for making board nominations. This skirmish remains in progress, but the latest battle, the Second Circuit opinion in AFSCME v. AIG, suggests the mixed federal system is working pretty well.

Keywords: Sarbanes Oxley, corporate governance, federalism, proxy voting, securities law, corporate law

JEL Classifications: G30, K22

Working Paper Series