Markets and Democracy: The Illegitimacy of Corporate Law

Abstract

Corporate law does not conform to ordinary democratic norms: unlike human citizens, corporations may decide which law will govern their most fundamental acts of self-governance. The corporate law corporations choose in turn influences the corporate goals and decision-making processes that determine what the corporation looks for in corporate law in a reflexive system independent of ordinary political processes. This system seems on its face to violate the most fundamental principle of popular sovereignty - all non-Delaware citizens of the United States are excluded from even formal participation in the process of determining American corporate law, and even Delaware citizens are reduced to a largely formalistic ratification role of results coerced, to a large extent, by the market for corporate control and the internal norms of a self-replicating system of law that has escaped from political control.

Corporate law scholars have devoted many pages to debating whether the surrender of corporate law to a market for corporate reincorporation generates substantively good or bad results, but there has been virtually no discussion of whether this process can be squared with the American commitment to self-governance. This Article aims to address that latter issue - with its obvious implications for other areas in which we, consciously or unconsciously, decide to subordinate politics to markets or vice versa.

Keywords: Corporate law, race to the bottom, democracy, federalism

JEL Classification: K23, G32, M14