The Failure of Federal Incorporation Law

Abstract

Corporate law scholars have long debated whether state-to-state competition for charters created a race to the top or a race to the bottom. In 2003, Mark Roe entered this debate, arguing, “Whether or not the states are racing, and whether they are racing to the top or to the bottom, we live in a federal system where Washington can, and often does, take over economic issues of national importance.” Given Washington’s tendency to take corporate lawmaking power away from the states, Roe explained, “we have never had, and we never could have had, a full state-to-state race in corporate law.” Roe’s pivot to the Washington-Delaware relationship and his emphasis on the power of federal corporate law makers to trump Delaware are important moves in the debate over the determinants of American corporate law. Yet Roe’s analysis raises the obvious question: Why does Congress allow Delaware to grab the agenda-setting power, allocating for itself (and its affiliates) only the ex post decision of whether to displace Delaware? Why permit Delaware to have the first crack at making corporate law? This essay sheds light on the question of why Congress does not displace the states in the important task of making corporate law. It does so by looking back at an important element in the story of Delaware’s domination of corporate law: the failure of Congress to implement federal incorporation. In 1908, during the last year of the Theodore Roosevelt’s final term as President, Congress had what may have been its best opportunity to enact a federal incorporation law — the Hepburn bill of 1908. After recounting the fate of the Hepburn bill, this essay finds some support for Roe’s explanation that the alignment of interests and scandal has never been right for the full nationalization of corporate law.