Tuesday, June 4, 2019

Moon: Delaware's New Competition

William J. Moon (Univ. of Maryland - Law) has posted Delaware's New Competition (Northwestern University Law Review, forthcoming). Here's the abstract:

It is a truism among legal scholars that corporate law is a matter of state law. According to the standard account, states (and only states) compete to supply corporate law to American corporations, with Delaware dominating the market. This competition metaphor in turn informs some of the most important policy debates in American corporate law.

This Article challenges the standard account, introducing foreign nations as emerging lawmakers that compete with American states in the increasingly globalizing market for corporate law. In recent decades, entrepreneurial foreign nations in offshore islands have attracted publicly traded American corporations by offering permissive corporate governance rules and specialized business courts. Aided in part by an elite cadre of private sector lawyers who draft legislation for these lawmakers, foreign nations enable American corporations to opt out of mandatory rules that are axiomatic features of American corporate law. Thus, for instance, shareholders of New York fashion house Michael Kors are virtually prohibited from bringing suits for managerial misconduct because the firm is incorporated in the British Virgin Islands.

The contribution of this Article is two-fold. The first is descriptive. It documents an emerging international market for corporate law that has thus far been undetected by legal scholars who presuppose an inter-state market. The second is normative. While this Article acknowledges the potential benefits offered by foreign nations competing to attract American corporations, it highlights countervailing considerations that render any claims about gains from international jurisdictional competition premature at best.