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Is Regulatory Competition a Problem or Irrelevant for Corporate Governance?
Yale Law School, NBER and ECGI1
This article provides an analysis of why regulatory competition in corporate law has operated, for the most part, successfully in the United States, and critiques the position of commentators who are sceptical of the significance and extent of state competition. The article begins by setting out the context in which regulatory competition has been most recently criticized, the US Congress's response to corporate accounting scandals in the Sarbanes–Oxley Act, and by briefly noting how the problematic features of that legislative response underscore the benefits of regulatory competition. It then evaluates recent criticisms of regulatory competition that focus on the role of the federal government, or the incentives of states other than the leading incorporation state, Delaware, and conclude that US corporate law is not the product of state competition. The article contends that these permutations on the state competition debate do not provide a satisfactory positive explanation of the behaviour or the influence of the states and federal government. The minimum policy implication of the analysis is that it would be imprudent for policy-makers to overlook the competitive regulatory experience in US corporate law when assessing the approach to take to company and securities law.
1 I would like to thank Marcel Kahan, Ehud Kamar, Jonathan Macey, and participants at the ECGI/Oxford Review of Economic Policy conference on Corporate Governance (Saïd Business School, Oxford, 28–29 January 2005), and the Fordham Law School Advanced Business Law Seminar for comments.