Because legal entities are capable of worse crimes than their corporeal counterparts.

Monday, March 3, 2008

A lot of press about corporations in the local paper lately.

The article really speaks to how much of a legal haven Delaware is for corporations.

When it comes to selling Delaware as the pre-eminent legal home for Corporate America, Supreme Court Chief Justice Myron Steele knows how to seal the deal.

Last summer, the justice hosted an elegant dinner at his Kent County farm for two Australian lawyers here to learn about the latest developments in Delaware law. From the dining room in the antebellum-style home, the guests could watch horses grazing in the pasture. Two justices and a senior state leader were on hand to schmooze and extol Delaware as the Tiffany & Co. of the incorporations business.

"We were extremely spoiled in our time in Delaware," David Friedlander, one of the lawyers, said by e-mail.

Such are the lengths to which Delaware jurists and state officials go to nurture the state's golden goose, an incorporations stronghold that provides the state with about one third of its $3.3 billion in annual revenue. For 109 years, Delaware has cultivated its role as the best place to incorporate by carefully tweaking its constitution, laws and court.

But formal dinners with the state's judicial elite might no longer be enough to protect the pot of gold. Corporate scandals, outrage over lavish executive pay packages, and concern that the system is tilted toward protecting management have led to calls for federal intervention.

A rising chorus of powerful lawmakers has championed federal rules for how companies govern themselves, something historically covered by state law. So prominent is Delaware in corporate law that its rules largely determine the internal workings of most large U.S. companies.

A populist backlash against corporate misdeeds, or a sense that the nation's economic system is being undermined, could prompt Congress to pass a federal incorporations law that would take the entire business from Delaware. "Why are we allowing a state with an enormous financial interest to set the policy of corporate America?" said William H. Clark, a lawyer at Drinker Biddle & Reath in Philadelphia, who wrote last year's shareholder-friendly statute for North Dakota.

Imagine Delaware if the worst were to happen, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "It would bankrupt us," he said. "Overnight we would go broke."

Delawareans most likely would face higher taxes with the loss of state revenue. Law firms would flee Wilmington. Legal support businesses would be left scrambling. The housing market would suffer, as would hotels, restaurants and caterers.

More at the link below.

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David said...

This article does provide some support for the argument that state corporate law is a race to the top, rather than to the bottom. Delaware can't afford to lose its primacy, so it can't completely cater to management (who are the ones deciding where to incorporate).

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