Irrelevant for Corporate Governance ? Is Regulatory Competition a Problem or ECGI

This article provides an analysis of why regulatory competition in corporate law has operated, for the most part, successfully in the United States, and critiques the position of commentators who are skeptical of the significance and extent of state competition. The article begins by setting out the context in which regulatory competition has been most recently criticized, the U.S. Congress’s response to corporate accounting scandals in the Sarbanes-Oxley Act, and by briefly noting how the problematic features of that legislative response underscore the benefits of regulatory competition. It then evaluates recent criticisms of regulatory competition that focus on the role of the federal government, or the incentives of states other than the leading incorporation state, Delaware, and conclude that U.S. corporate law is not the product of state competition. The article contends that these permutations on the state competition debate do not provide a satisfactory positive explanation of the behavior or the influence of the states and federal government. The minimum policy implication of the analysis is that it would be imprudent for policymakers to overlook the competitive regulatory experience in U.S. corporate law when assessing the approach to take to company and securities law. Prepared for the Special Issue of the Oxford Review of Economic Policy on Corporate Governance and the Corporate Governance Conference at the Saïd Business School, University of Oxford, January 28, 2005. I would like to thank Marcel Kahan, Ehud Kamar, Jonathan Macey and participants at the Conference and the Fordham Law School Advanced Business Law Seminar for comments.