Centros, California's 'Women on Boards' Statute and the Scope of Regulatory Competition

39 Pages Posted: 15 May 2019 Last revised: 5 Jul 2019

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Date Written: May 7, 2019

Abstract

We examine the Centros decision through the lens of SB 826 – the California statute mandating a minimum number of women on boards. SB 826, like the Centros decision, raises questions about the scope of the internal affairs doctrine and its role in encouraging regulatory competition. Despite the claim that US corporate law is characterized by regulatory competition, in the US, the internal affairs doctrine has led to less variation in corporate law than in Europe. We theorize that this is due to the shareholder primacy norm in US corporate law which results in the internal affairs doctrine focusing on matters of shareholder interest and, primarily, shareholder economic interest. We argue that the internal affairs doctrine should be understood within the context of the shareholder primacy norm and therefore directed to rules oriented to enhancing firm economic value. In contrast, EU corporate law has traditionally had broader stakeholder orientation. We posit that the limited impact of the Centros decision, an impact which differed significantly from its predicted revolutionary effect, can be attributed to the greater focus of EU corporate law on social ordering and extra-shareholder interests. This difference leads to a new understanding of SB 826 as reflecting a move toward more EU-style governance focused on social ordering. Ironically, California’s adoption of SB 826 may portend a movement of the United States towards Centros-style governance. Under this analysis, we argue that SB 826 should not be viewed as inconsistent with the internal affairs doctrine since it involves social ordering rather than purely shareholder interests.

Keywords: corporations, corporate law, comparative law, European company law, EU & US regulatory competition, Centros, corporate charters, internal affairs doctrine, shareholder primacy norm, social ordering, SB 826, California 'Women on Boards' Statute

JEL Classification: G38, K23, M14

Suggested Citation

Fisch, Jill E. and Davidoff Solomon, Steven, Centros, California's 'Women on Boards' Statute and the Scope of Regulatory Competition (May 7, 2019). European Business Organization Law Review (Forthcoming).; U of Penn, Inst for Law & Econ Research Paper No. 19-23; European Corporate Governance Institute (ECGI) - Law Working Paper No. 454/2019. Available at SSRN: https://ssrn.com/abstract=3384768

Jill E. Fisch (Contact Author)

University of Pennsylvania Law School - Institute for Law and Economics ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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