2004 • Volume 29 • Number 3

Delaware, the Feds, and the Stock Exchange: Challenges to the First State as First in Corporate Law

Robert B. Thompson

Delaware faces an unprecedented challenge to its role as the dominant law-giver as to corporate law. Its reign is not imperiled by the other states racing with Delaware but by the federal government and the stock exchanges. These alternative law-givers have long accorded state law a broad berth to define the relative rights of shareholders, directors, and officers within a corporation. In the aftermath of the Enron scandals, Delaware adopted more of a status quo response while the other two lawgivers added additional obligations that intrude into the space long occupied by Delaware. This article identifies the core parts of what might be called Delaware’s mission statement as to corporate law: trust directors, let them decide how they want to use the various gatekeepers, contracts, and market constraints (including not using them if they see fit) with occasional judicial check via fiduciary duty cases. The post-Enron federal and stock exchange rules seek to narrow the discretion that directors have to act by, for example, imposing new obligations directly on officers and regulating duty of care type concerns that traditionally have been the province of state law. The article concludes with suggestions of how Delaware might adapt its law given its mission statement and the current realities of the other law-givers to shore up its dominant position in making corporate law.