Delaware's Profits

Minor Myers (Brooklyn Law School)

Abstract: This paper develops a new theory of the production of corporate law in Delaware and the roots of that state’s preeminence in the market for corporate law. The conventional account supposes that Delaware behaves in ways that maximize its chartering revenue, and Delaware lawyers are cast as a powerful interest group that diverts rents to itself in the form of litigation revenue. This paper argues that the conventional account is backwards: it is in fact the Delaware bar that is responsible for the production and maintenance of Delaware’s corporate law. Legislators and other state bureaucrats have minimal incentives to invest in improving the state’s corporate law, and indeed the strongest incentive for legislators would be to seek political capital by expropriating wealth from Delaware-incorporated firms. The corporate bar, by contrast, has an incentive to make costly investments in drafting legislation and designing governance innovations, so long as those changes generate enough paying legal work. This theory of Delaware’s corporate law-making can explain a number of peculiar and underappreciated features of Delaware practice: the wholesale deference to the corporate bar in drafting legislative change, the secretive way the bar develops proposed amendments, the difficulty of uncovering judicial guidance on cutting-edge topics, and the sharp limitations on the privilege of practicing the Court of Chancery. Moreover, if this account of Delaware’s lawmaking is correct, it implies that some amount of corporate litigation in Delaware is socially desirable because it allows the Delaware bar to profit from its investment in producing corporate law.