Abstract: Delaware makes the corporate law governing most large American corporations.
Since Washington can take away any, or all, of that lawmaking, a deep conception of
American corporate law should show how, when, and where Washington leaves
lawmaking authority in state hands, and how it affects what the states do.
The interest groups and ideas in play in Delaware are narrow, the array in
Congress wide. Three key public choice results emanate from this difference. First,
interest groups powerful enough to dominate Delaware lawmaking forgo a winner-takeall
strategy because federal players may act if they see state results as lopsided. Second,
the major state-level players usually want to minimize federal authority in making
corporate law, because a local deal cuts in fewer players; a federal deal splits the pie with
outsiders. Third, we can delineate the space where the states have room to maneuver from
where they risk federal action.
Delaware law typically represents the status quo. It’s when its law is the first on
the ground – as it often is because the federal agenda is large and Delaware’s small—
that it gains most of its discretion vis-à-vis the federal authorities. When it moves first,
especially when its two main players – managers and investors – agree on what to do, it
sets the initial content of American corporate law. Federal authorities might then change
the state-made result, and players and ideologies absent in Delaware but big in
Washington affect the federal result. Those new players and ideas give the original
Delaware players reason to resist federal action. Doctrines that limit federal effort are
public-regarding justifications for deferring to interests that prevail on the state level. But
when Delaware cannot act first—either because media saliency puts the matter on the
federal agenda or because its primary players disagree—Delaware loses its dominance.
I analogize the relationship between Delaware and Congress to that between
federal agencies and Congress. Federal agencies have discretion and first-mover
advantages, but their independence even when wide is not without limits, ending when
they provoke Congress. So it is with Delaware.