Charles M. Elson is the Edgar S. Woolard, Jr. Chair in Corporate Governance and Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. This post is based on his recent paper and is part of the Delaware law series; links to other posts in the series are available here.
Delaware’s preeminent role in corporate regulation has endured for several important reasons. Most importantly, the state’s entire approach to the corporate law has been centered on investor protection. Although through the years the ways by which it has tried to achieve this protection have changed, it is this animating principle that defines its laws. Investors are keenly aware of this fact and seek and respect the approach. Delaware’s primary industry is corporate regulation, and to maintain its franchise, it must carry out its responsibilities fairly, intelligently and responsibly. Its corporate code is the most advanced in the country. Its judiciary has unusual expertise in the field and is highly respected in the resolution of corporate disputes. [1] In recent years, the state has maintained a delicate balance between upholding shareholder power and board prerogative. It is favored as the nation’s finest and most balanced forum for corporate dispute resolution by both investors and managers as there are no real major local corporate interests as seen in other larger jurisdictions to affect its perceived neutrality. While other states, most notably Nevada and North Dakota, have attempted to usurp its franchise either through statutes that are seemingly more protective of management or shareholder friendly, none has succeeded largely because of the difficulty in creating an experienced and recognized corporate judiciary. Delaware possesses a powerful franchise that would be difficult for any other state to reproduce both judicially and, because of the potential influence in other jurisdictions of local corporate interests, practically.
