Democracy and the Dominance of Delaware

in The Failure of Corporate Law

Published by University of Chicago Press

Published in print February 2007 | ISBN: 9780226306933
Published online March 2013 | e-ISBN: 9780226306988 | DOI:
Democracy and the Dominance of Delaware

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Delaware has a population less than one-third of one percent of the United States, but it is the state of incorporation of more than fifty percent of U.S. public companies and 60 percent of the Fortune 500. Its resulting dominance over the terms of corporate governance in the country has been the focus of one of the most persistent debates within corporate law scholarship: whether Delaware's dominance has been the result of a “race to the bottom”—a competition among states for a legal regime that benefits managers at the expense of the shareholders—or a “race to the top”: a competition for an efficient, shareholder-centric governance framework. This chapter argues that the internal affairs doctrine, which allows corporations to choose the corporate governance law that applies to them, has allowed Delaware to reach an exceptional position of power. Short of federalizing corporate charters, the nation could experience a genuine increase in the democratization of corporations simply by having states assert their own prerogative to regulate the corporations they have a significant interest in regulating.

Keywords: Delaware; democratization; corporate governance; internal affairs doctrine; corporate law; race to bottom; race to top; corporations; United States

Chapter.  6627 words. 

Subjects: Company and Commercial Law

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