Delaware's Peril

Marcel Kahan

Delaware has long dominated the market for incorporations by publicly traded firms. It has been able to maintain its dominant position for two reasons. First, other states lack significant incentives, and have failed to make significant efforts, to compete with Delaware. Second, the main constituents for corporate law rules—shareholders and managers—have been largely satisfied with being regulated by Delaware and have not pushed for federal legislation to preempt state corporate law. However, in the recent presidential election cycle, we saw the possible beginning of an erosion of the consensus that a company’s internal affairs should be governed by state law. The political platforms of Senators Bernie Sanders and Elizabeth Warren contained proposals that would undermine Delaware’s dominant position—including requirements that public companies be federally chartered and that employees (to whom directors would owe fiduciary duties) elect close to half of company’s board members. Whatever the specific fate of these proposals, the mere fact that they were made by two leading candidates for the Democratic presidential nomination presents the most significant threat to Delaware over the last fifty years.