The Creeping Federalization of Corporate Law
The Creeping Federalization of Corporate Law

Author: Stephen M. Bainbridge

Publisher:

Published: 2004

Total Pages: 7

ISBN-13:

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The collapse of Enron and WorldCom, along with only slightly less high profile scandals at numerous other U.S. corporations, has reinvigorated the debate over state regulation of corporate governance. Post-Enron, politicians and pundits called for federal regulation not just of the securities markets but also of internal corporate governance. As Congress and market regulators began implementing some of those ideas, there has been a creeping - but steady - federalization of corporate governance law. The NYSE'S new listing standards regulating director independence is one example of that phenomenon. Other examples appeared to little public debate in the sweeping Sarbanes-Oxley legislation. Taken individually, each of Sarbanes-Oxley's provisions constitutes a significant preemption of state corporate law. Taken together, they constitute the most dramatic expansion of federal regulatory power over corporate governance since the New Deal.No one seriously doubts that Congress has the power under the Commerce Clause to create a federal law of corporations if it chooses. The question of who gets to regulate public corporations thus is not one of constitutional law but rather of prudence and federalism. In this essay, I advance both economic and non-economic arguments against federal preemption of state corporation law. Competitive federalism promotes liberty as well as shareholder wealth. When firms may freely select among multiple competing regulators, oppressive regulation becomes impractical. If one regulator overreaches, firms will exit its jurisdiction and move to one that is more laissez-faire. In contrast, when there is but a single regulator, exit is no longer an option and an essential check on excessive regulation is lost.

The Genius of American Corporate Law
The Genius of American Corporate Law

Author: Roberta Romano

Publisher: American Enterprise Institute

Published: 1993

Total Pages: 180

ISBN-13: 9780844738369

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This is a study of the structure of American corporate law, which combines economic analysis with empirical insights to produce a number of policy insights. It is suitable for anyone studying corporate law, securities regulation, comparative company law or federalism.

From 'Federalization' to 'Mixed Governance' in Corporate Law
From 'Federalization' to 'Mixed Governance' in Corporate Law

Author: Robert B. Ahdieh

Publisher:

Published: 2012

Total Pages: 38

ISBN-13:

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Since the very moment of its adoption, the Sarbanes-Oxley Act of 2002 has been subject to a litany of critiques, many of them seemingly well-placed. The almost universal condemnation of the Act for its asserted 'federalization' of corporate law, by contrast, deserves short shrift. Though widely invoked - and blithely accepted - dissection of this argument against the legislation shows it to rely either on flawed assumptions or on normative preferences not ordinarily acknowledged (or perhaps even accepted) by those who criticize Sarbanes-Oxley for its federalization of state corporate law.Once we appreciate as much, we can begin by replacing the misleading rhetoric of 'federalization'. More importantly, we might begin to conceptualize a theory of corporate law that is both more effective in advancing our desired ends and perhaps closer to market realities than the competing paradigms presently in ascendance. In this spirit, I offer a model of jurisdictional redundancy - in which federal mandatory rules intertwine with state enabling rules, to create a more indeterminate regulatory regime than we might otherwise pursue. Such a scheme of 'mixed governance' may deprive legal scholars of the opportunity to draw clear distinctions, but may allow the regulation of corporate governance to operate more effectively, and to evolve more efficiently over time.

Varieties of Corporate Law-Making
Varieties of Corporate Law-Making

Author: Robert B. Ahdieh

Publisher:

Published: 2012

Total Pages: 0

ISBN-13:

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In few areas have legal scholars focused more closely on the sources of law than in the study of corporate governance. Questions of institutional design thus pervade the literature of corporate law. Most prominent among these questions have been ones surrounding the allocation of law-making authority as between federal and state authorities: What is the dynamic by which corporate law will be generated at the state level, absent federal intervention? What is the normative quality of the resulting rules? When might a federal role be advisable, if not essential, in the regulation of public corporations? What form ought any such intervention take, and what distortions might it be expected to introduce into our traditionally state-based regime of corporate law? There has been much debate over these questions, to which the literature of law and economics has contributed mightily. To a striking degree, however, scholars have come to embrace - at least in broad terms - a common view on these questions. In this standard account, sub-national rules of corporate governance are to be preferred. State law - and the dynamic of state competition that arises from it - generates (at least some) efficiency gains, helping to reduce agency costs, as between shareholders and managers. For these and other reasons, the law and economics literature admonishes, the scope of federal law in an optimal regime of corporate governance should be limited. Federal rules may have a role in imposing mandatory disclosure obligations, regulating aspects of the issuance and trading of corporate securities, and in selected other circumstances, but not more generally. In this chapter, I suggest that this account of corporate law, widely accepted as it has become in the law and economics literature, deserves a closer look. As to what might be thought of as its horizontal and vertical axes - the perception of (horizontal) state competition as beneficial for shareholder-managerial relations, and the notion of (vertical) federal preemption as properly limited - the meaning and implications of the conventional account turn out to be more ambiguous. A careful analysis thus highlights critical limitations of each of these claims, and offers a more complex picture of the optimal sources of corporate law. Ultimately, a closer analysis of the horizontal dimension of state-to-state interaction and the vertical dimension of potential federal intervention points us to the same result in institutional design: a more mixed architecture of corporate law-making.

The (Misunderstood) Genius of American Corporate Law
The (Misunderstood) Genius of American Corporate Law

Author: Robert B. Ahdieh

Publisher:

Published: 2012

Total Pages: 57

ISBN-13:

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In the standard rhetoric of the corporate law literature, federalism is quot;the genius of American corporate lawquot; - an engine of efficiency, motivating a race (or at least a leisurely walk) to the top. Some have dissented, suggesting that the prevailing wisdom is wrong as to either the direction or the vitality of the promised race. But the latter critiques are too forgiving. The standard account misunderstands the basic question; its answer, as such, is not even wrong. Rather than weighing in on the quot;race debate,quot; thus, I challenge the fundamentally flawed discourse behind it. I offer a distinct framework for evaluating the role of federalism in American corporate governance, which points to distinct measures of efficiency and a reinvigorated study of institutional design in corporate law.To begin, I challenge the literature's merger of two distinct competitions - state and managerial - into one. More critically, I decry the resulting linkage between corporate law's central goal-efficient regulation of the separation of ownership and control - and the central element of its institutional design - federalism. That rhetorical linkage has led us astray in important respects: First, it has bootstrapped a role for federalism in advancing not merely the quality of corporate law, but also the substantive quality of corporate governance. Second, it has essentialized the role of federalism, casting it as indispensable to the production of good law. Dominant as these conceptions are in the discourse of corporate law, neither is true.I suggest an alternative account of federalism's contribution to American corporate governance. Federalism is not directed to the traditional goal of corporate law - regulation of the vertical separation of ownership and control within the firm. Rather, it advances a distinct, horizontal goal of regulating the relationship of the firm as a whole with state regulators external to it. Given as much, a federal regime is not dictated by a commitment to efficiency in corporate law. Rather, it is an institutional design choice, to be evaluated for its efficacy and utility - as well as its limitations - in one area of corporate law versus another.

Federal Corporate Law
Federal Corporate Law

Author: Lucian A. Bebchuk

Publisher:

Published: 2015

Total Pages: 48

ISBN-13:

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This paper analyzes the history of federal intervention in corporate law and draws from it lessons for the future. We show that federal intervention has generally not alternated between tightening state law restrictions on corporate insiders and relaxing them. Rather, federal law has systematically replaced state law arrangements with ones imposing tighter constraints on insiders. Without federal intervention, state law would have produced a corporate system that provides substantially weaker investor protection than the United States enjoys today. We also show that federal interventions have systematically taken advantage of additional tools (including public enforcement, criminal sanctions, gatekeeper liability, and agency-based regulations) beyond those that state law has chosen or been able to use. Overall, unless one views existing levels of investor protection as substantially excessive, past patterns suggest that state competition on its own is unlikely to produce an adequate level of investor protection. Furthermore, the recurring need for federal officials to rectify state law failures in order to provide investors with adequate protection indicates that federal lawmaking should be proactive rather than reactive. We thus recommend that, going forward, federal policymakers examine in a systematic and comprehensive fashion which corporate law areas should be federalized either because tighter restrictions on insiders are needed or because the additional tools available to federal law would be useful.

The Failure of Corporate Law
The Failure of Corporate Law

Author: Kent Greenfield

Publisher: University of Chicago Press

Published: 2010-09-01

Total Pages: 0

ISBN-13: 9780226306940

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When used in conjunction with corporations, the term “public” is misleading. Anyone can purchase shares of stock, but public corporations themselves are uninhibited by a sense of societal obligation or strict public oversight. In fact, managers of most large firms are prohibited by law from taking into account the interests of the public in decision making, if doing so hurts shareholders. But this has not always been the case, as until the beginning of the twentieth century, public corporations were deemed to have important civic responsibilities. With The Failure of Corporate Law, Kent Greenfield hopes to return corporate law to a system in which the public has a greater say in how firms are governed. Greenfield maintains that the laws controlling firms should be much more protective of the public interest and of the corporation’s various stakeholders, such as employees. Only when the law of corporations is evaluated as a branch of public law—as with constitutional law or environmental law—will it be clear what types of changes can be made in corporate governance to improve the common good. Greenfield proposes changes in corporate governance that would enable corporations to meet the progressive goal of creating wealth for society as a whole rather than merely for shareholders and executives.

The Irrelevance of State Corporate Law in the Governance of Public Companies
The Irrelevance of State Corporate Law in the Governance of Public Companies

Author: J. Robert Brown

Publisher:

Published: 2007

Total Pages: 0

ISBN-13:

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Weak state regulation of corporate governance process and the race to the bottom resulted in federal intervention in the 1930s and the adoption of the securities laws. The laws largely ousted the states from the corporate disclosure and proxy process. The duties of directors, however, remained subject to state regulation. The race to the bottom, therefore, continued. One example was the adoption of waiver of liability provisions. It took less than two decades after Delaware adopted the first such provision in the aftermath of Van Gorkom for all 50 states to have something similar in place. Likewise, fiduciary obligations gradually weakened, with Delaware all but eliminating the duty of loyalty, replacing substantive fairness with ineffective procedural requirements. The predicable scandals and excesses followed. Congress responded with the adoption of Sarbanes-Oxley and federalizing some portions of the duties of officers and directors. SOX, however, did not do so in a systematic way. As a result, neither the states nor the federal government adequately regulate the behavior of corporate managers. Said another way, the dynamics that resulted in the scandals of the millennium largely remain in place.

Does Federalism Matter?
Does Federalism Matter?

Author: Renee M. Jones

Publisher:

Published: 2006

Total Pages: 34

ISBN-13:

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Federalism has played a perplexing role in the development of corporate governance policies in the United States. Federalism's appealing attributes - diversity, competition, innovation and efficiency - are touted as core values by defenders of Delaware's dominance in corporate law. At the same time, the need for a national solution is often emphasized in increasingly successful appeals to limit the states' role in regulating securities transactions and adjudicating securities fraud claims. The inconsistent application of federalism principles in these closely related fields is puzzling.Why should a set of values so central to the corporate law debate be set aside so readily in discussions of securities law policy? This Article explores this question and concludes that the protracted debate regarding the proper division of authority among state and federal regulatory actors is an unfortunate distraction. Because state and federal regulators alike have vast authority and experience in regulating corporate conduct and securities practices, academic discussion should focus more on how best to coordinate action among diverse regulators to maximize the benefits of concurrent authority and minimize its burdens.The Article proposes an integrated approach to corporate regulation in which state and federal regulators are equally engaged in setting corporate governance policies. An integrated approach can help facilitate democratic deliberation, improving the prospect that government policies will reflect the public will. An integrated perspective can also free academic discussions from unnecessary distractions created by unavailing efforts to constrain corporate law and securities law within separate and distinct spheres.

The Creeping Federalization of Wealth-Transfer Law
The Creeping Federalization of Wealth-Transfer Law

Author: Lawrence W. Waggoner

Publisher:

Published: 2014

Total Pages: 29

ISBN-13:

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Federal authorities have little experience in making law that governs wealth transfers, because that function is traditionally within the province of state law. Although state wealth-transfer law has undergone significant modernization over the last few decades, all three branches of the federal government -- legislative, judicial, and executive -- have increasingly gone their own way. Lack of experience and, in many cases, lack of knowledge on the part of federal authorities have not dissuaded them from undermining well-considered state law. This article appears in a symposium issue published by the Vanderbilt Law Review on The Role of Federal Law in Private Wealth Transfer. The Article covers these topics: federal preemption of several areas of state law, the development of federal common law as a sometime substitute for preempted state law, the federal tax exemption for perpetual trusts, and the right of posthumously conceived children of assisted reproduction to Social Security survivor benefits.