Sunday, September 14, 2008
Regulatory Competition, Venue and Delaware's Stake in Corporate Law, by Faith Stevelman Kahn, New York Law School, was recently posted on SSRN. Here is the abstract:
Disagreement persists about the effects of regulatory competition on corporate law, but there's consensus that Delaware's has "won" the race. Most public companies are incorporated in Delaware, and this success yields enormous tax revenue, income for Wilmington's corporate bar and great prestige for the judges on the Court of Chancery and Supreme Court. There are signs that Delaware's future preeminence in corporate law may be threatened, however.
The most obvious threat is external. The burgeoning array of federal statutes, SEC regulations, listing standards and shareholder activists' best practices threaten to eclipse the importance of state corporate law, including Delaware's. Their growing influence might erode out of state managers' incentives to charter in Delaware.
The second threat arises from the growing "interstate travel" of Delaware corporate lawsuits. In sum, venue is heating up as a critical issue for Delaware's control over its crown jewel - its fiduciary case law. Though the internal affairs doctrine makes Delaware (substantive) law "stick" in corporate litigation against Delaware companies and/or their affiliates, it does not limit plaintiffs' venue choices, or provide a meaningful basis for courts or law makers to do so - recent protestations of the Court of Chancery notwithstanding.
Charter and bylaw provisions, judicial doctrine and legislative action all could be employed to limit Delaware corporate shareholders' venue choices. The Article concludes, however, that forcing venue is risky, likely to backfire and to erode the prestige, intellectual coherence and value arising from Delaware's corporate law.