America is beset with partisan politics. The brinkmanship, dysfunction, and policies that emanate from political partisanship touch so much of American life, law, and society. Increasingly and prominently, businesses have been drawn into partisan debates on issues like gender equality, gun violence, reproductive rights, racial justice, and climate change. Many executives, investors, employees, activists, and other stakeholders now expect American businesses to play an active role in addressing many of society’s toughest challenges in the face of political institutions that too often seem too partisan to meaningfully confront those challenges. In response to a new wave of corporate social activism, national and local political leaders have both admonished and applauded businesses for their attempts to address social issues.
This new wave of corporate social activism has prompted many important questions and reexaminations of core issues at the critical intersection of business, law, and politics. One such foundational question is political partisanship’s impact on corporate law.
In a forthcoming article, Is Corporate Law Nonpartisan?, Professors Ofer Eldar and Gabriel Rauterberg offer an in-depth, fair minded examination of partisanship’s effects on corporate law and corporate lawmaking. Through a thoughtful study, that carefully weaves quantitative and qualitive analyses, the article offers a persuasive explanation of how partisanship may have contributed to key differences in state corporate laws and how safeguards against partisanship have contributed to Delaware’s sustained dominance in the competition for corporate charters.
First, the article quantitatively explores potential links between partisanship and corporate law making. Professors Eldar and Rauterberg carefully curated and created data sets that allowed them to examine how political partisanship could impact state corporate law, particularly with regards to “anti-takeover statutes, anti-litigation laws and hybrid legal forms that have a blended profit-social mission.” (P. 11.) Their findings suggest that partisanship has a meaningful impact on corporate law making. Specifically, they observed that “Democratic control is associated with anti-takeover legislation, particularly constituency statutes that permit managers to consider the interests of a broader set of stakeholders. This is also consistent with the finding that Democrats tend to pass laws that facilitate the adoption of hybrid forms.” (P. 18.) Additionally, they observed that anti-litigation statutes are not associated with Republican leadership in state government, “but there is some evidence that a subset of them, specifically loyalty waivers and universal demand laws are more likely under Republican rather than Democratic control.” (Id.) These empirical findings and observations offer a persuasive explanation of how partisanship contributes to critical differences in corporate laws among the states.
Second, the article uses corporate governance theory and legal history to qualitatively explain how Delaware’s insistence on non-partisan corporate law making maybe be an underappreciated factor in its dominance in the competition for corporate charters, particularly among large businesses. The article argues that part of Delaware’s appeal for corporate leaders resides in the unusually nonpartisan structural safeguards the state designed to shield its corporate law from partisan waves and whims:
The process by which Delaware makes corporate law is explicitly designed to be insulated from political partisanship, and it has been since Delaware became the principal home to incorporations a century ago. Delaware’s Constitution requires that the Delaware judiciary be balanced between Democratic and Republican judges and that changes to its corporate law receive supermajority support. The main source of legislative drafting for any changes to Delaware’s corporate law is not a political branch, but the Council of the Delaware State Bar Association’s Corporation Law Section. The major arms of Delaware corporate lawmaking—the legislative process and the courts—have both been carefully immunized from the normal political fray. (P. 5.)
The article contends that while all laws are political to some extent, Delaware’s intentionally nonpartisan approach is particularly attractive to large businesses because it offers their executives a stable and predictable, yet flexible set of rules to help govern their corporate affairs for the benefit of diverse bodies of shareholders with a variety of partisan political views. During a time, like the present, when partisanship has disrupted so many aspects of American law, society, and business, Delaware’s deliberately nonpartisan foundation to corporate law may be particularly appealing and reassuring to business executives seeking an enduring, steadfast ground to grow their enterprises.
In the end, the dysfunctional, hyper-partisanship that has plagued our political and democratic institutions in recent years appears to have no end in the near term. More and more businesses have been called upon by various stakeholders to step into the political voids and chasms caused by this unhealthy strain of partisan politics to help tackle some of the toughest issues facing society. As policymakers and scholars continue to debate and deliberate about the appropriate role of business in politics and society during this era of partisan angst, they will invariably be thinking of new ways to understand the dynamics between politics, business, and law. For anyone studying these consequential, unfolding dynamics, Professors Ofer Eldar and Gabriel Rauterberg’s recent article lights new, informed paths for further inquiry and action.
