The New Political Economy of Delaware Corporate Lawmaking

Fifty years ago, former SEC chair William Cary famously attacked  Delaware’s role in promulgating national corporate law and argued that to improve our national corporate law, “[t]he first step is to escape from the present predicament in which a pygmy among the 50 states prescribes, interprets, and indeed denigrates national corporate policy as an incentive to encourage incorporation within its borders thereby increasing its revenue.”  Cary’s attack has been echoed in the intervening years whenever a crisis has struck.

Traditionally, Delaware defended its role in corporate law by having its high quality, specialized courts oversee its development.  Legislative interventions have been largely technical and interstitial. Any amendments were drafted by an apolitical Corporation Law Council, with the legislature and political interests playing no material role. Leading Delaware lawyers served on the Council, its deliberations were confidential, and proposed amendments did not interfere with pending litigation. In the relatively rare cases when amendments were controversial, the Council moved deliberately, obtained input from affected constituencies over a prolonged period of time, and developed a measured proposal that balanced the competing interests. Importantly, Council members were able to “put on their Delaware hat” and to prioritize Delaware’s long-term interests, or at least the long-term interests of Delaware lawyers as a group, over the immediate (and often pressing) interests of clients and their out-of-state law firms.

The traditional process effectively responded to Delaware’s democratic legitimacy deficit by cloaking corporate law in apolitical, technocratic expertise: law was made largely by expert judges, while legislative amendments were drawn up by expert lawyers and largely confined to technical issues and the few controversial amendments went through significant vetting and were balanced in substance.  Under this traditional approach, it mattered little that the judges were Delaware judges or that the lawyers were Delaware lawyers.

The events of 2024 and 2025 show that the traditional process has broken down. In 2024, the Council proposed a set of controversial “market practice amendments” that responded to out-of-state pressure and related to issues that the Supreme Court had not yet had a chance to review.  The proposal moved through the Council at great speed and was not balanced, most notably in validating stockholder governance agreements that potentially accord a powerful stockholder with unlimited veto rights over board decisions.  In 2025, even more controversial “DExit amendments” were drafted over two weeks by an ad hoc committee in response to threats by controlled companies to reincorporate out of Delaware. The proposed amendments, which transformed §144 of the Delaware General Corporation Law to provide a safe harbor for conflict transactions and significantly cut back the types of books and records available under §220, were submitted to the Council for limited review only after having already been introduced in the General Assembly. The amendments were adopted by the legislature on an accelerated basis, with limited opportunity for external input or changes to the proposed legislation.  The process was nakedly political.

These departures from the traditional process—the adoption of two sets of significant new rules by legislation within two years, the short-circuiting of the Council in the DExit amendments, the lack of deliberation, the resulting lack of balance in substance—have already focused national attention on the political nature of Delaware corporate lawmaking and rekindled debate over why Delaware, one of the smallest states in the nation, is the de facto promulgator of national corporate law. The traditional process served Delaware well and, we believe, produced high quality corporate law.  Why led Delaware to depart from this tried and true formula?

We believe that changes in the capital markets and the Delaware legal market have combined to undermine the ability of the traditional process to prioritize Delaware’s long term interests in remaining the de facto promulgator of national corporate law.  Since the early 2000s, capital markets have been transformed by the rise of dual-class companies. Such companies typically have controllers who have the effective power to reincorporate in a different jurisdiction with only the approval of the directors they have elected to the board.  At the same time, their small economic equity stakes give these controllers powerful incentives to push for special rules that favor their private interests.  Accommodating these controllers’ demands is difficult within the traditional board-centric Delaware framework which makes their demands particularly disruptive.

Delaware’s legal market has also undergone a transformation.  In the 1980s, four large Delaware firms dominated the legal market and had the ability to resist pressure from clients and referring counsel. Today, Delaware lawyers face incentives to further their personal or firm’s shorter-term interests over the long-term interests of Delaware or its law firms as a whole.  The dominant firms have dramatically increased in size, leading to more intrafirm competition. A number of significant boutique firms have emerged, giving both Delaware lawyers and out-of-state referring firms more options.  And national firms have opened significant Delaware offices whose economic fortunes are more closely tied to the national firm.  Delaware lawyers today are just as ethical and upright as their forebears but operate in a fundamentally different environment.

The breakdown of the traditional process shines a spotlight on the anomaly of Delaware’s status as de facto promulgator of national corporate law and carries fundamental risks for Delaware. Delaware thrives when no one notices its role. The spotlight carries potentially existential risk for Delaware’s role in corporate law. Faced with a financial crisis or pressure from constituents, Congress could wholly or partially federalize corporate law. States could change or narrow the scope of the internal affairs doctrine and reduce their level of deference to Delaware.

If Delaware wants to fend off these threats, it must enhance its legitimacy and reform its mode of lawmaking.  The key is to boost its ability to act independently even when that requires resisting client and national firm pressure. To do so, we suggest the creation of a legislatively authorized “Corporation Law Commission” that will replace the Council as the initiator of amendments to the DGCL. The membership of that body would differ from the current Council membership by having fewer lawyers in active practice. It would substitute retired lawyers and members selected to represent various groups with a stake in Delaware corporate law such as the Chamber of Commerce and the Council of Institutional Investors. The Commission would have procedural rules that are designed to enhance transparency and opportunities to provide input, such as notice and comment periods.

Pursuing such a course carries significant costs and the result may well be inferior to the traditional process, a return to which, in our view, is no longer possible.  But it is a risk worth taking. After the experiences of 2024 and 2025, a change is necessary.