A Spatial Representation of Delaware-Washington Interaction in Corporate Lawmaking

Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Last month, the Columbia Business Law Review published “A Spatial Representation of Delaware-Washington Interaction in Corporate Lawmaking.” In this brief paper, I examine interaction between Delaware and Washington in corporate lawmaking, focusing on the shareholder access initiatives in each jurisdiction. The paper uses a straight-forward spatial model of the state-federal interaction, paralleling spatial models that political scientists have used to illustrate other instances of jurisdictional interaction.

In prior work I showed how Delaware corporate law can be, and often is, confined by, or influenced by, federal action. Sometimes Washington acts and preempts the field, constitutionally or functionally, leaving no space for state corporate law action. Sometimes Delaware tilts toward or follows Washington opinion, even if Washington opinion does not square perfectly with the state lawmakers’ own consensus view of the best way to proceed. I examined these channels in Delaware’s Competition, 117 Harvard Law Review 588 (2003), and Delaware’s Politics, 118 Harvard Law Review 2491 (2005).

But the interaction is a two-way street, with the directionality not just being that of Washington affecting Delaware, but also the other direction, in that state-based corporate lawmaking can effectively coopt a busy Washington. Delaware lawmaking could have that effect and could even at times be motivated to push forward such corporate law that would deter a busy Washington, or even affect federal litigation. This impact could sometimes even be intended by some state lawmakers, particularly if the Washington actions would not accord with Delaware’s major constituents’ view of best practice. Delaware results can influence Washington decision-making when Delaware is positioned between its own ultimate preferences (determined in part by its primary constituencies’ consensus position) and Washington’s prevailing preferences. Since Congress has a long and complex agenda, if key players in Washington become satisfied that the Delaware legal outputs are close enough to their own preferences, Delaware can induce Washington to desist from going further. A related article is forthcoming in the Harvard Business Law Review, “The Corporate Shareholder’s Vote and its Political Economy, in Delaware and in Washington.”

The full paper is available for download here.

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