Delaware Law Mid-Century: Far From Perfect but Probably Not Leaving for Las Vegas

Abstract

This Essay examines controversies surrounding certain recent Delaware corporate law decisions from the perspective of the jurisdictional competition among states for corporate charters. I begin with the assumption that Delaware has state-of-the-art and up-to-date corporate law interpreted in a legal environment avoid of corruption. Delaware's dominance in the jurisdictional competition for corporate charters, however, may be in jeopardy nevertheless, as significant stockholders increasingly express an interest in fleeing Delaware for other states, and Delaware lawyers and corporate advisors express unprecedented unease about the legal environment in Delaware. The apparent vulnerability of Delaware is understandable when one recognizes that sometimes even outstanding products sometimes fail in the marketplace. Products sometimes fail because they are too complicated or risky to use, or because the people who make the decision to buy the product assign a low or even negative value to their supposedly superior characteristics. Here I argue that this is happening in Delaware. The problem is exacerbated by the "suspicious and negative tone adopted towards corporate boards and management" by certain Delaware judges. These particular Delaware judges are rendering decisions that weaken the contracting power of controlling shareholders and afford legal "protection" to minority and noncontrolling shareholders who neither want nor value the "protections" foisted on them. The judges are unmoved by the fact that these controlling shareholders and their advisors are highly influential in the decision about where to incorporate. Their increasing dissatisfaction with the Delaware legal landscape explains certain of the actual and threatened departures from Delaware.

Keywords: Corporate Governance, Corporate Law, Controlling Shareholders, Fiduciary Duties, Jurisdictional Competition for Corporate Charters