Tuesday, August 5, 2008
Delaware's Disclosure: Moving the Line of Federal-State Corporate Regulation, by Robert B. Thompson, Vanderbilt University - School of Law; Vanderbilt University - Owen Graduate School of Management, was recently posted on SSRN. Here is the abstract:
Delaware's century-long success in attracting corporations to use its law has provoked a recurring series of inquiries seeking to explain how one of our smallest and least populous states dominates such an important part of our national economy. The larger potential challenge to Delaware's hegemony is the continued shrinking of the space for any state corporate law as the federal government elects to encompass more and more of all fields of American law. This article develops how judicial requirements as to disclosure have become a way for Delaware to push into the part of corporate governance that has been most visibly the federal government's domain. By case law particularly visible since 2007, Delaware courts have expanded the reach of Delaware law in corporate governance via disclosure even in an age of growing federal regulation. This development shows that disclosure to protect the exercise of shareholder governance rights cannot be effectively separated from legal protection that substantively protects shareholder's ability to act within that space, protection usually provided by fiduciary duty provided by Unocal, Revlon and other such well known Delaware cases. Absent a broader federalization of corporate law, only Delaware can provide protection of both disclosure and the shareholders' substantive rights, giving Delaware a continuing advantage as a lawgiver in resolving corporate governance disputes. Additionally, this article addresses challenges made to Delaware law as indeterminate, providing a structural overview that suggests judicial review of director action can best be seen within a space running between judicial deference on one side and intrusive judicial review on the other. The article provides a schematic presentation of how various Delaware cases seen as indeterminate easily fit within such a structure.