For over a century, Delaware’s dominance in corporate law has been credited to an expert judiciary, deep case law, a specialized bar, a responsive legislature, and relative insulation from interest-group politics. Recent legislative and jurisprudential events, however, have caused observers to question whether Delaware now faces daunting political constraints that undermine its ability to produce optimal corporate law.
In a new paper, we develop and refine a novel conceptual framework assessing regulatory competition in corporate law, which largely ratifies these concerns (about both Delaware and other rival jurisdictions). Yet we also identify an underappreciated advantage that Delaware still possesses: the ability for its corporations to opt out of governmentally provided corporate law entirely. Indeed, just months before the highly contentious reforms of 2025, Delaware may have unwittingly saved itself by extending to corporate entities the ability to contract around corporate law using stockholder agreements. We show that this new contractual freedom, combined with broad federal authority in favor of allowing arbitration where specified, allows incorporators to adopt fully privatized law (including the adjudication of disputes). This kind of competition from within – private ordering built upon an ostensibly Delaware incorporated structure – can bolster, and perhaps even strengthen, the state’s competitive position against other aspiring rivals.
Our article offers three contributions – conceptual, practical, and prescriptive:
- Conceptually, we return to the classic jurisdictional competition debate and show that it omits important nuance about the production of corporate law. More specifically, the leading accounts too often assume a one-size-fits-all demand for governance and a frictionless supply of law, neither of which reflects the current reality. On the demand side, corporations face heterogeneous strategic, financial, and operational environments; it is implausible that a single governance template is optimal for all. On the supply side, law-producing states must navigate their own constraints – revenue needs, political capture, and interest-group pressure – while trying to serve that heterogeneous demand. We therefore develop a “differentiated product framework” for the production of corporate law that takes each of these dimensions seriously. Our framework not only squares with the corporate law landscape that we see – with fringe jurisdictions competing with a market leader by differentiating their products – it also generates testable predictions about how revenue-maximizing legal regimes will compete with each other when producing corporate law.
- Practically, we use our framework to evaluate Delaware’s 2025 legislative amendments as a case study. The process and outcome, we argue, were shaped in material ways by organized interests in a manner that may have undermined the state’s stated goal of defending its incorporation franchise. Our analysis lines up with emerging empirical evidence suggesting the reforms did not improve Delaware’s competitive position. More broadly, it suggests the veneer insulating corporate law production from interest-group pressures has thinned considerably – and is unlikely to recover any time soon. These political pathologies, moreover, affect not only Delaware, but they also extend to other governmental providers at both the state and national levels.
- Prescriptively, we identify an intriguing escape hatch from this political predicament: private ordering. Less than a year before the controversial 2025 reforms, Delaware promulgated a different set of statutory amendments that explicitly empower stockholders to design governance by contract and to outsource adjudication. While privatized governance has long existed for LLCs, it has not been fully available for corporations until these recent changes. With this newly unlocked authority – reinforced by a receptive federal environment – Delaware corporations can craft (or procure) their own privately generated common law, largely bypassing state courts for dispute resolution. To make that possibility concrete, we propose a Delaware Arbitration Board (DAB): a subscription-based private tribunal staffed by expert arbitrators and given incentives to produce (i) less politicized default rules, (ii) a coherent and stable body of precedent, and (iii) responsive dispute resolution. Over time, additional private providers could enter, competing both with the DAB and with legacy state institutions – thereby disciplining everyone through credible exit.
Taking corporate law private through stockholder agreements is by no means a panacea. But it can deliver firm-specific tailoring, dampen the influence of interest group politics on corporate lawmaking, and – crucially – do so without requiring reincorporation. As such, privatizing corporate governance can be attractive to both critics of Delaware’s 2025 legislative reforms and skeptics of evolving Delaware judicial opinions. Delaware’s distinct advantage, in short, may now lie less in monopolizing public law production and more in enabling high-quality private law to flourish within its corporate form.
This post comes to us from Dorothy S. Lund, the Columbia 1982 Alumna Professor of Law, and Eric Talley, the Marc & Eva Stern Professor of Law and Business, at Columbia Law School. It is based on their new paper, “Should Corporate Law Go Private?”, available here.