Leave It To Delaware: Why Congress Should Stay Out Of Corporate Governance
Jill E. Fisch
Commentators have debated the relative merits of state and federal regulation of corporate law and corporate governance for many years. The debate has attained heightened importance with the enactment of the Dodd- FrankWallStreetReformandConsumerProtectionActof2012. InDodd- Frank, Congress intruded into the allocation of decision-making authority between shareholders and directors, a subject generally relegated to state law, by adopting federal provisions on say on pay and proxy access. In so doing, Congress made an explicit determination that the financial crisis had exposed shareholders’ inability to ensure management accountability.
This Article criticizes the congressional usurpation of Delaware’s traditional role in regulating corporate governance. Focusing on the topics of proxy access and say on pay, the Article demonstrates the continued superiority of Delaware’s approach over federal regulation. In particular, this Article reveals that in precisely those areas where Delaware’s approach has been criticized, market developments have enabled investors to use moderated responses and private ordering to address perceived problems, without incurring excessive costs or destabilizing management authority. In contrast, Dodd-Frank’s reforms eliminate the potential for issuer-specific tailoring and experimentation, while mandating procedures that are unlikely to provide investors with meaningful value.
Nonetheless, Delaware’s effective regulation of corporate governance and its ability to maintain its leadership position, face continuing challenges in the form of business and technological developments. The Article argues that Delaware’s lawmaking structure is particularly well-suited to adapt to these challenges. The Article concludes by exploring Delaware’s ongoing responses to three such challenges—private dispute resolution, globalization, and developments in shareownership.