For decades, the SEC stood as the principal barrier to mandatory arbitration for shareholder claims. In September 2025, that barrier fell. The agency’s reversal on shareholder arbitration represents a seismic policy shift, leaving Delaware law as the sole impediment to widespread adoption of arbitration provisions in public company charters and bylaws.
In a new article, I visit the past, present, and likely future of shareholder arbitration. I show that Delaware’s prohibitions on arbitration emerged not from any principled hostility to arbitration, but as a byproduct of the state’s efforts to regulate corporate-forum provisions. These historically contingent bans are now colliding with a transformed federal-policy landscape – one that will force Delaware into some uncomfortable choices. I expect that Delaware law will ultimately reflect whatever the market wants, at least for arbitration of federal securities claims. The real question is whether the market actually wants what it’s now free to choose.
The Past: Delaware’s Attempts to Regulate Forum Provisions
Though the SEC opposed shareholder arbitration for decades, Delaware’s formal opposition is far more recent. In 2015 and again in 2025, the Delaware legislature amended the DGCL to bar arbitration provisions from corporate charters and bylaws. DGCL Section 115(a) prohibits forced arbitration of state corporate law claims; DGCL Section 115(c) prohibits forced arbitration of federal securities claims.
Notably, neither statute was animated by arbitration concerns. Indeed, neither statute even mentions arbitration directly. Instead, each statute was enacted in response to developments in case law concerning corporate forum provisions.
DGCL Section 115(a)
Enacted in 2015, Section 115(a) was intended to (1) codify Boilermakers Local 154 v. Chevron, which upheld a bylaw designating the Delaware Chancery Court as the exclusive forum for internal corporate claims, while (2) overriding City of Providence v. First Citizens BancShares, which enforced a similar bylaw designating a non-Delaware court as the exclusive forum. By precluding any forum provision that excludes the Delaware courts, Section 115(a) was intended to ensure that corporations formed under Delaware law could not wholly exempt themselves from the oversight of the state’s courts. But an unmistakable byproduct of Section 115(a) is to also bar any provision compelling arbitration of internal corporate claims.
DGCL Section 115(c)
Enacted in 2025, Section 115(c) was intended to (1) codify Salzberg v. Sciabacucchi, which upheld a bylaw requiring federal securities claims to be brought in federal court, while (2) overriding Lee v. Fisher, which upheld a bylaw requiring all derivative claims to be brought in the Delaware Chancery Court. Because the Chancery Court lacks jurisdiction to hear derivative claims brought under the federal securities statutes, the practical effect of Lee was to entirely preclude shareholders from asserting federal derivative claims. The legislative intent animating Section 115(c) had nothing to do with arbitration; it was to prevent what happened in Lee. The legislative intent was to bar public companies from using the forum provisions authorized under Delaware law to preclude federal derivative lawsuits. Yet Section 115(c) has the same collateral effect as Section 115(a): It prohibits any provision compelling shareholders to arbitrate federal securities claims.
The Present: Delaware Stands Alone
Within weeks of Section 115(c)’s enactment, the SEC reversed course on shareholder arbitration. The Commission grounded its new policy in Supreme Court precedents the agency had long resisted, conceding that compelling arbitration does not violate the anti-waiver provisions of the federal securities statutes. For Delaware, the timing could not have been worse.
Shortly after the agency’s policy reversal, SEC Chair Paul Atkins traveled to Delaware to deliver the keynote address at a celebratory gala. Speaking to an audience of Delaware corporate lawyers and jurists, Atkins sharply criticized Section 115(c) as a “giant step backward,” suggesting “the state is not only uninterested in reform, but instead seems to embrace the litigation costs that abusive lawsuits impose on companies franchised in Delaware.” His message could not have been clearer: The SEC had signaled its approval of shareholder arbitration, and now it was time for Delaware to fall in line.
The Future
Delaware’s Calculus
Delaware faces a different calculus for each of its two statutory arbitration bans.
For state corporate law claims covered by Section 115(a), Delaware has every reason to maintain its prohibition. The ban ensures that the Chancery Court remains the central arbiter for the nation’s public corporations and continues to generate new precedents. New precedents are the lifeblood of Delaware corporate law – they ensure Delaware law remains nimble and adaptive, and they create network effects that make Delaware more attractive than other states where judicial precedents are scarce. A broad migration of shareholder disputes into private arbitration would gut Delaware’s regulatory authority and stunt the development of the state’s corporate law. Arbitration has been aptly described as an existential threat to Delaware’s lucrative corporate law enterprise. Delaware will never voluntarily repeal Section 115(a), and if Section 115(a) is challenged under the Federal Arbitration Act, Delaware has a strong basis to defend it. As a party to the corporate contract, the chartering state can withhold its consent to arbitration, and the FAA cannot manufacture consent where none exists.
Section 115(c) is different. Unlike internal corporate claims, Delaware has no comparable interest in federal securities claims. They do not generate Delaware precedents or develop Delaware corporate law. Delaware simply has no stake in whether those claims are resolved in federal court or private arbitration. To the extent there was any justification for Section 115(c)’s arbitration ban, it was to align Delaware law with federal policy. But that justification is gone. In response to Atkins’ demands, Delaware can no longer justify Section 115(c)’s ban based on concerns the SEC has expressly rejected.
Any company seeking an arbitration provision could sidestep Delaware’s ban by incorporating elsewhere. Renewed interest among public corporations in Nevada and Texas adds pressure for Delaware to relent. If companies begin to incorporate elsewhere to obtain arbitration provisions, Delaware will face enormous pressure to repeal Section 115(c).
The Market’s Role
Whether companies will embrace arbitration remains uncertain. Institutional investors and proxy advisers have consistently opposed mandatory arbitration. Every time shareholders have been presented with an arbitration proposal, they have rejected it decisively, and corporate managers themselves have shown little enthusiasm. From Alphabet to Pfizer, every time a public company has faced a proposal to adopt an arbitration provision, management has opposed it.
Management opposition may reflect investor sentiment. But it may also reflect sober skepticism about what arbitration would accomplish. Class actions provide a predictable, law-governed process that arbitration cannot match. The federal PSLRA’s procedural safeguards narrow disputes and prevent duplicative actions – filters that arbitration lacks. Class actions centralize large-scale disputes efficiently, whereas individualized arbitration splinters claims into uncoordinated proceedings. And class actions deliver finality: A class-wide settlement binds all investors, while an arbitration award binds only the individual claimant.
Despite warnings that the SEC’s move has opened the floodgates, it remains far from certain that compelled shareholder arbitration will become widespread. Still, the taboo against arbitration has been broken. History shows that at least some public companies will seek to include arbitration provisions in their governing documents. Whether Delaware resists or relents will depend on the market’s appetite for arbitration.
Mohsen Manesh is the L.L. Stewart Professor of Business Law at the University of Oregon School of Law. This post is based on his recent paper, “The Past, Present, and Likely Future of Shareholder Arbitration,” available here.