Indeterminacy in Corporate Law: A Theoretical and Comparative Analysis

Delaware corporate law is the de facto national law for publicly traded corporations. But whereas its importance is beyond dispute, its efficiency is not. In particular, prominent voices in the literature assert that regulatory competition between states has made Delaware law excessively vague and indeterminate. However, little evidence has been offered to either support or refute the alleged impact of regulatory competition on legal determinacy. To an extent, this is unsurprising. To show that regulatory competition makes-or does not make-corporate law less determinate, one has to demonstrate how corporate law would look in the absence of regulatory competition-hardly an easy task To overcome this problem of evaluation and shed some empirical light on the matter, I use a comparative perspective and contrast Delaware law with the corporate law systems of two other major Western jurisdictions: Germany and the United Kingdom. Due to the peculiar characteristics of Europe's nascent market for corporate charters, regulatory competition cannot be blamed for any indeterminacy that may plague U.K. or German corporate law. However, as I show, both legal systems rely at least as strongly on indeterminate standards as Delaware does. The most obvious explanation for this finding is that regulatory competition may not have the deleterious impact on legal determinacy that its critics allege.