Delaware and the Transformation of Corporate Governance

Abstract

The corporate governance arrangements of publicly traded companies have been transformed over the past four decades. Various observers have suggested that Delaware, where more than half of U.S. public companies are incorporated, has done much to influence corporate governance changes. This Article considers the nature and extent of Delaware’s contribution to the development of corporate governance, indicating in so doing that this contribution was substantial but not decisive. Delaware had only a marginal impact on changes affecting key corporate governance topics such as executive pay and shareholder activism. On the other hand, with boards a series of well-known Delaware court decisions in the mid-1980s fortified the status of independent directors and provided incentives for boards to be attentive. Also, Delaware court rulings helped to bring to an end the hectic takeover activity of the 1980s, which in turn likely prompted a shift in emphasis away from the market for corporate control in favor of “internal” corporate governance mechanisms.

Keywords: Delaware, corporate governance, boards of directors, takeovers, executive pay, shareholder activism

JEL Classification: G34, G38, K22, N22