Federalism vs. Federalization: Preserving the Division of Responsibility in Corporation Law
63 Pages Posted: 28 Jan 2006
Date Written: December 15, 2005
An efficient division of responsibility, and the specialization that necessarily accompanies it, lie at the heart of any successful business enterprise. The same principle applies with equal force to the institutions charged with regulating those enterprises or adjudicating their conduct. Since the enactment of the Securities Exchange Act of 1934 (the 1934 Act), the prevailing division of responsibility in the United States has broadly followed a federal model: The federal government has limited itself (with important exceptions) to disclosure issues in regulating the flow of information from public corporations to the securities markets, while the states have established the legal framework governing the firms' internal affairs. There is also a third, ambiguous area that some describe as the regulation of voting "procedure." That is a term that has some surface legitimacy, but there is a concern that it may sometimes be used as a bootstrap argument for increased federalization.
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