Does Federalism Matter?: Its Perplexing Role in the Corporate Governance Debate

Abstract

Federalism has played a perplexing role in the development of corporate governance policies in the United States. Federalism's appealing attributes - diversity, competition, innovation and efficiency - are touted as core values by defenders of Delaware's dominance in corporate law. At the same time, the need for a national solution is often emphasized in increasingly successful appeals to limit the states' role in regulating securities transactions and adjudicating securities fraud claims. The inconsistent application of federalism principles in these closely related fields is puzzling.

Why should a set of values so central to the corporate law debate be set aside so readily in discussions of securities law policy? This Article explores this question and concludes that the protracted debate regarding the proper division of authority among state and federal regulatory actors is an unfortunate distraction. Because state and federal regulators alike have vast authority and experience in regulating corporate conduct and securities practices, academic discussion should focus more on how best to coordinate action among diverse regulators to maximize the benefits of concurrent authority and minimize its burdens.

The Article proposes an integrated approach to corporate regulation in which state and federal regulators are equally engaged in setting corporate governance policies. An integrated approach can help facilitate democratic deliberation, improving the prospect that government policies will reflect the public will. An integrated perspective can also free academic discussions from unnecessary distractions created by unavailing efforts to constrain corporate law and securities law within separate and distinct spheres.

Keywords: federalism, securities law, corporate governance, securities regulation, dynamic federalism