The New Political Economy of Delaware Corporate Lawmaking

2024 and 2025 marked a breakdown in Delaware’s traditional approach to corporate lawmaking, a breakdown that resurrects the longstanding debate over whether Delaware should function as the de facto promulgator of national corporate law.  In this Article, we argue that the breakdown in the Delaware process is a result of changes in the capital and legal markets.

The key capital market change is the rise of dual-class controlled companies that can credibly threaten to reincorporate from Delaware and have governance demands that traditional corporate law doctrine cannot easily accommodate.  The key legal market change is increased competition among Delaware lawyers resulting from an increase in the size of Delaware firms, from an increase in the number of Delaware firms, and from more out of state firms opening Delaware offices.  Together, these changes make it more difficult for Delaware lawyers to resist the pressure to accommodate demands from controllers, controlled companies and their out-of-state law firms even if accommodating these demands is adverse to the long-term interests of Delaware and of Delaware lawyers as a group.  

To address these changes, we propose replacing the current “Corporation Law Council” with a legislatively created “Corporation Law Commission” that prioritizes the creation of a balanced and technically excellent corporate law over making changes that serve immediate client interests. The Commission’s membership incorporates greater representation from other stakeholders and has fewer Delaware lawyers engaged in active practice.  Its procedures would establish mechanisms to enhance transparency and encourage input.  By increasing the legitimacy of Delaware’s statutory lawmaking process, these changes will help Delaware address the challenges from other jurisdictions and the ever-present threat of federal intervention.  A robust process such as the one we propose will help Delaware withstand national scrutiny, external competition, and the prospect of federal intervention.