Federalism and Corporate Law: A Non- Delaware View of the Results of Competition
WILLIAM J. CARNEY*
The United States of America (USA) has witnessed a lengthy debate over the virtues and vices of corporate federalism. For a long time the debate consisted of assertions based on differing characterizations of judicial decisions and statutory changes. This phase was followed by a debate based on a model of behaviour, drawn from theory about the behaviour of capital markets. Both sides assumed that a competition for corporate chartering business existed, in which Delaware was the clear winner. Both sides also assumed, without systematic examination, that a competition existed, in which states other than Delaware sought to modernize their statutes to retain this chartering business. The result, according to either view, was a profound effect on the shape of American corporate law. That law was both more uniform and more 'liberal' than would otherwise be the case. But these claims have remained assertions, essentially unexamined by scholars, with the single exception of Romano's path-breaking work ( Romano 1985; 1993). The focus of most of the literature has been on the dominant producer of corporate law, Delaware. This chapter attempts to fill these gaps by focusing on production by the other 49 states.
Part I provides an interest group theory to explain why states would attempt to compete with Delaware. Delaware possesses certain 'first-mover' advantages that have kept it the dominant producer of corporate law for nearly a century. The process of reincorporation to Delaware has been a steady one. If writing corporate laws is costly, what would explain the attempt of states to keep pace with Delaware, or perhaps even to provide innovations before it? This chapter suggests that at least two interest groups benefit from modern local corporate laws--local corporate lawyers and managers of firms incorporated within the state. It examines the collective action problems facing these groups, and suggests they will specialize in the____________________