There is a new article by Yale Law Professor Jonathan Macey that tackles a topic we have been discussing here quite a lot lately; name;y, the challenges to Delaware's dominance of corporate law: Delaware Law Mid-Century: Far From Perfect but Probably Not Leaving for Las Vegas, available at SSRN: https://ssrn.com/abstract=5043887
Macey sets the stage by observing that Delaware historically has been favored as a state of incorporation due to its efficient legal framework, judiciary, legislature, and executive branch. The state benefits significantly from that status because it derives a significant portion of its revenue from corporate charters.
Macey then notes that Delaware faces a number of emerging challenges, not least of which is increasing dissatisfaction among controlling shareholders, corporate advisors, and lawyers with recent Delaware Chancery Court decisions. These rulings are widely perceived as overly protective of minority shareholders, often to the detriment of controlling shareholders and corporate boards. In Macey’s view, they have undermined confidence in Delaware's predictability and appeal to decision-makers who influence incorporation choices. Worse yet, minority shareholders, who ostensibly benefit from these protections, often do not value them and even oppose such rulings.
According to Macey, the problem is not just that the Delaware courts are getting the law wrong, but that certain judges are adopting a "suspicious or negative" tone toward corporate controllers and boards. Efforts by the Delaware legislature to reverse some of these judicial decisions failed to change the tone, while highlighting internal discord between legislature, courts, and the bar.
Despite these current challenges, Macey concludes that Delaware is unlikely to lose its dominance soon due to the lack of a superior alternative. The state's legal framework still offers a relatively favorable environment for corporate governance compared to other jurisdictions.
Going forward, however, Macey argues Delaware must ensure that its "product" remains appealing to the actual decision makers in incorporation decisions. At present, it can best do so by doing a better job of balancing protections for minority shareholders with the needs of controlling shareholders and corporate advisors.
If I may be so bold, I suggest reading Macey’s article in conjunction with two of my recent articles:
Bainbridge, Stephen Mark, A Course Correction for Controlling Shareholder Transactions (November 15, 2024). UCLA School of Law, Law-Econ Research Paper No. 24-07, Available at SSRN: https://ssrn.com/abstract=5022685
Bainbridge, Stephen Mark, DExit Drivers: Is Delaware's Dominance Threatened? (July 29, 2024). UCLA School of Law, Law-Econ Research Paper No. 24-04, Available at SSRN: https://ssrn.com/abstract=4909689
