The Contested Edges of Internal Affairs

Abstract

Because of the internal affairs doctrine, the tiny state of Delaware plays a unique and outsized role as the nation’s preeminent regulator of corporate governance. But two recent developments have raised new questions about the precise scope of the doctrine and, consequently, Delaware’s lucrative regulatory domain. Specifically, in a four-month span in late 2018, (i) California enacted the nation’s first law mandating board gender diversity for all public corporations headquartered in California and (ii) the Delaware Court of Chancery in Sciabacucchi v. Salzberg invalidated a corporate charter provision purporting to regulate shareholder rights arising under federal securities law. These two high-profile corporate law developments highlight the inescapable indeterminacy at the edges of the internal affairs doctrine. This indeterminacy puts Delaware — and the many corporations that rely on Delaware law — in a precarious position because other states may contest the boundaries of the doctrine. Challenges at the edges of internal corporate affairs may both erode Delaware’s corporate law hegemony and reshape the regulatory landscape for corporations.