Abstract
Delaware is widely regarded as the gold standard in corporate law, largely due to its expertise and responsiveness to evolving business needs. But that status comes at a cost. Delaware’s corporate statutes are typically drafted by a small group of repeat players—primarily attorneys from some of Delaware’s leading law firms—whose proposals are routinely enacted with minimal public input. This closed process raises familiar agency concerns, but with a twist: While corporate law aims to mitigate first-order agency problems between corporate managers and shareholders, the lawmaking process itself may be affected by the self-interest of those drafting the statutes—a second-order agency problem. The drafters of Delaware’s corporate statutes are not elected, are not required to disclose deliberations, and do not answer to the shareholders whose interests their laws affect. Rather, they face incentives to pursue marginal private benefits—such as professional stature or advancing client interests—even at the risk of departing from Delaware’s goal of effective corporate governance and reducing the long-term value of Delaware’s corporate law as a public good. This risk is magnified when statutes are enacted in response to judicial decisions, such as Delaware General Corporation Law §§ 122(18) and 144. Those changes not only circumvented appellate review but excluded meaningful input from key stakeholders, including corporate governance experts, institutional investors, and minority shareholders. This Article proposes reforms drawn from Delaware’s Administrative Procedures Act. They include public notice and comment, a published legislative record, and opportunities for meaningful input from affected stakeholders. These measures will enhance transparency and accountability while preserving Delaware’s key strengths—its expertise, responsiveness, and leadership in corporate law. If implemented, the reforms will help mitigate Delaware’s existing second-order agency problem and offer a model of open and transparent corporate lawmaking, reaffirming Delaware’s role as a national leader in corporate governance.
Recommended Citation
Charles K. Whitehead,
Delaware’s Agency Problem,
79 Vanderbilt Law Review
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Available at: https://scholarship.law.vanderbilt.edu/vlr/vol79/iss4/1