Regulatory Competition in Making Corporate Law in the United States—and its Limits
Harvard Law School
American corporate-law scholars have focused on jurisdictional competition as an engine—usually as the engine—making American corporate law. Recent decisions in the European Court of Justice open up the possibility of similar competition in the EU. That has led analysts to wonder whether a European race would mimic the American, which depending on one's view is a race to the top—promoting capital markets efficiency—or one to the bottom—demeaning it by giving managers too much authority in the American corporation. But the academic race literature underestimates Washington's role in making American corporate law. Federal authorities are regularly involved, regularly make law governing the American corporation—from shareholder voting rules, to boardroom composition, to dual class stock—and they could do even more. In structure, the United States has two corporate lawmaking powers—the states (primarily Delaware) and Washington. We are only beginning to understand how they interact, as complements and substitutes, but the foundational fact of American corporate lawmaking during the twentieth century is that whenever there is a big issue—the kind of corporate policy decision that could strongly affect capital costs—Washington acted or considered acting. We cannot understand the structure of American corporate lawmaking by examining state-to-state jurisdictional competition alone.