Tuesday, April 28, 2009
Cunningham on The New Federal Corporation Law
The New Federal Corporation Law?, by Lawrence A. Cunningham, George Washington University Law School, was recently posted on SSRN. Here is the abstract:
Could a preemptive federal incorporation law today assume the enabling character of traditional state corporation law, instead of the mandatory flavor typical of much federal securities regulation? Does global competition mean that the US should both preempt state corporation law and adopt a flexible, principles-oriented approach to business regulation? This essay, commenting on Robert Ahdieh’s Trapped in a Metaphor: The Limited Implications of Federalism for Corporate Governance, shows how this surprising approach is plausible and may be desirable but also that it is not politically likely in the current environment.
The intellectual basis for a preemptive, enabling, and flexible federal corporation law appears in the Treasury Department’s March 2008 blueprint for financial regulation reform. The blueprint would consolidate regulatory power in Washington over securities, futures, banking and insurance, then delegate that power to self-regulatory organizations. The logic extends readily to traditional corporation law. That means federal preemption plus delegation to stock exchanges, who take over the role that US law traditionally gives to states. US stock exchanges then compete with stock exchanges elsewhere, wielding a broad range of tools, including jurisdiction to resolve disputes, usually handled by states. The result would promote US competiveness in global capital markets.
Intellectually, the domestic corporate law competition debate gets replayed as an international securities law debate which, of course, already is underway, highlighted by issuer choice proposals. Market forces dominate the form and content of resulting corporate law and governance. Political realities likely put these developments out into the future however. Instead, there is a good chance that federal preemption of state corporation law may soon come, covering corporations of systemic significance and imposing on them strict, mandatory corporation law rules, ranging from board composition, executive compensation, shareholder voting procedures, and interests of other constituencies.