The race to the top versus race to the bottom debate usually focuses on the quality of Delaware law. As part of their case, proponents of the race to the bottom thesis have embraced USC law professor Ehud Kamar's claim that Delaware law is indeterminate. I have never bought that argument. Granted, Delaware corporate law consists mainly of standards rather than rules, but it is still highly predictable.
The quantity -- and thus the predictability -- of Delaware corporate law is the subject of Mike O'Sullivan's response to my earlier post Why doesn't California retain incorporations:
Delaware's strength is its wealth of published judicial decisions applying its corporate law to real world factual situations. Even the clearest statute is of limited use to a practitioner, as the real world is infinitely more varied than any statute. It's only by applying a statute to the real world over time that the statute takes on a life, assumes certain habits, develops a personality and, in a word, becomes predictable.
Comparatively few corporate law issues ever make it to litigation, let alone to a published court decision. So often, when trying to figure out how a particular corporate statute works, we simply don't have any history showing how the statute worked in similar situations. Sometimes, we don't have any history of the statute operating in any situation. This void is the enemy of predictability.
Delaware, by dint of its efficient court system, its huge pool of corporations and its long record showing, through reported court decisions, how these issues have been applied and resolved, simply has the deepest well of corporate law experience out there. This deep well gives Delaware the most predictable corporate law. For example, Delaware's highly developed body of fiduciary duty case law is both unique and invaluable. When I get questions regarding fiduciary duties for directors of Delaware corporations, chances are very good that I'll find an very similar factual situation dealt with in a prior case. Even when I don't find a similar factual situation, I know enough about how Delaware courts have applied these principles in other situations to make a well-educated guess as to how they would apply it to my situation.
So much for the indeterminacy claim.
