The Case Against Statutory Menus in Corporate Law

Abstract

There seems to be a virtual consensus among corporate law scholars that state legislatures should enable corporations to select governance terms from a menu of predefined statutory rules. In this Article, I challenge this view.

The private sector has produced menus of contract terms, such as standard form contracts and model documents, long before the idea of statutory menus became fashionable. There is no evidence that the market for private menus has failed, and legislatures are unlikely to be efficient menu producers. Advocates of statutory menus have suggested a number of rationales, most notably considerations based on transaction costs, network and learning effects, bounded attention, or endogenous preferences. But at closer look, none of these justifications are plausible, if nothing else because they equally apply to private menus. The existing statutory menus do, however, clarify that certain governance terms are legal in cases where this would otherwise be uncertain. Yet that uncertainty should be reduced by other means than menus. For these reasons, menu production should be left to the private sector.

Keywords: Corporate law, menus, standard form contracts, legislation, policy analysis, private lawmaking, United States

JEL Classification: K22, G34, G38, H40