There's a really interesting new article by Jill Fisch and Steven Davidoff Solomon:
We examine the Centros decision through the lens of SB 826 – the California statute mandating a minimum number of women on boards. SB 826, like the Centros decision, raises questions about the scope of the internal affairs doctrine and its role in encouraging regulatory competition. Despite the claim that US corporate law is characterized by regulatory competition, in the US, the internal affairs doctrine has led to less variation in corporate law than in Europe. We theorize that this is due to the shareholder primacy norm in US corporate law which results in the internal affairs doctrine focusing on matters of shareholder interest and, primarily, shareholder economic interest. We argue that the internal affairs doctrine should be understood within the context of the shareholder primacy norm and therefore directed to rules oriented to enhancing firm economic value. In contrast, EU corporate law has traditionally had broader stakeholder orientation. We posit that the limited impact of the Centros decision, an impact which differed significantly from its predicted revolutionary effect, can be attributed to the greater focus of EU corporate law on social ordering and extra-shareholder interests. This difference leads to a new understanding of SB 826 as reflecting a move toward more EU-style governance focused on social ordering. Ironically, California’s adoption of SB 826 may portend a movement of the United States towards Centros-style governance. Under this analysis, we argue that SB 826 should not be viewed as inconsistent with the internal affairs doctrine since it involves social ordering rather than purely shareholder interests.
Fisch, Jill E. and Davidoff Solomon, Steven, Centros, California’s 'Women on Boards' Statute and the Scope of Regulatory Competition (May 7, 2019). European Business Organization Law Review (Forthcoming).; U of Penn, Inst for Law & Econ Research Paper No. 19-23. Available at SSRN: https://ssrn.com/abstract=3384768
What, you may be asking, is this Centros decision of which they speak? From the Columbia Journal of European Law:
In 1999 the European Court of Justice (the “ECJ”) handed down its decision in the now famous case of Centros Ltd v. Erhvervs- og Selskabsstyrelsen. The case concerned the ability of two Danish nationals to incorporate their company in the UK without carrying out any business there for the purpose of operating their company in Denmark through a “branch,” all the while skirting Danish rules on minimum capitalization. Despite the Danish government’s protestations that this constituted blatant fraud and endangered creditors, the ECJ held that the Danish nationals’ scheme was permissible under the right to freedom of establishment as guaranteed by the EC Treaty.
Centros, in the words of one commentator, immediately provoked “great waves of unrest on the continent.” To understand why this is so, it is necessary to understand the system of conflict-of-laws approaches within Europe – a system which at this point rises to the level of deeply held convictions. Although the ECJ did not explicitly address conflict-of-laws in Centros, many commentators have argued that the case has serious implications for this issue.
The Netherlands, the UK, Ireland and Denmark subscribe to incorporation theory in their conflict-of-laws legislation, while the rest of Europe subscribes to the system of siège réel, or seat theory. As far as the Netherlands, the UK, Ireland and Denmark are concerned, they are willing to recognize any corporation as a legal entity so long as it has been duly incorporated under the laws of a particular jurisdiction. The rest of Europe, however, insists that a company’s legal personality be bound to the place of its “real seat,” or central administration. Therefore, a duly incorporated company seeking to locate its central administration in a seat theory state will not be recognized legally until it reincorporates itself under that state’s laws.
For years, seat theory has guaranteed those countries that adhere to it effective control over the businesses whose activities concentrate within their borders. Indeed, seat theory is designed as a first line of defense against corporations governed by (presumably less stringent) foreign laws. It has also effectively prevented the prospect of regulatory competition within the European Union (the “EU”) in the area of company law.