Choice and Federal Intervention in Corporate Law

Abstract

In a recent and provocative essay, Lucian Bebchuk and Allen Ferrell put forward a proposal for takeover-related corporate law that they contend 'dominates' the present system of state competition. They advocate in favor of a new federal takeover regime combined with a mandatory choice rule through which shareholders may force a corporation to opt into the new federal regime. We applaud Bebchuk and Ferrell's proposal in so far it expands the amount of choice available to corporations and thereby increases competition within the market for takeover-related legal rules. While some choice makes the present system better, we argue that greater choice, perhaps even in the form of privately-supplied corporate law rules, can further improve overall shareholder welfare. We are also skeptical that simply adding one additional option, albeit at the federal level, will generate significantly more choice for corporations and shareholders. Finally, we disagree with the mandatory choice rule for shareholders on the grounds that shareholders as a group may not always benefit from such a regime.

Keywords: corporate governance, regulatory competition, corporate law, takeovers

JEL Classification: K200, K220, K290