Corporate Court Acting in Secret, Citizens Locked Out
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Chancellor Chandler wrote of the shareholder lawsuit, "When one looks past the lofty allegations of duties of oversight and red flags used to dress up these claims, what is left appears to be plaintiff shareholders attempting to hold director defendants personally liable for making (or allowing to be made) business decisions that, in hindsight, turned out poorly for the Company."
Tiny, Napoleonic Delaware has never had much in the way of natural endowments, but the state's cutthroat cleverness has allowed it to flourish at the expense of its neighbors. Delaware has a long history of treating government as a business and undercutting the competition—other U.S. states.
At the turn of the century, New Jersey was nationally considered to be the "Corporate State," providing a safe haven for the massive trusts of the Gilded Age, which mostly operated out of New York. In 1899, Delaware silently enacted a carbon copy of New Jersey's business laws, and in 1913, fortune smiled on Delaware with a gift from Woodrow Wilson. As one of his final acts as the governor of New Jersey before assuming the presidency, Wilson pushed through rigorous anti-trust legislation called the "Seven Sisters," that promised to clampdown on the robber barons and promote what he called a "new era in business life."
But rather than sparking more stringent regulation of the large, often economically abusive trusts, the Seven Sisters laws caused companies to flee en masse into the arms of nearby Delaware, which provided a business safe haven. Today, the majority of Fortune 500 companies are incorporated in Delaware. The nation's credit card and finance industry remains based in Wilmington, where among many advantages, companies enjoy a fast-and-loose incorporation process and what is widely considered to be an open and "accessible" state legislature. (In Delaware, anyone, even non-U.S. citizens, can get incorporated 24 hours a day. One only has to pay a special fee.) Additionally, Delaware's generous tax code allows companies to hide intangible assets from the IRS, making the state the closest thing we have to a tax haven on U.S. soil. When I asked one former Delaware state official what the difference between Delaware and the Cayman Islands was, he laughed and said, "We speak English."
In recent years, Delaware has seen its significant advantage as the nation's corporate safe haven noticeably diminished as the deregulatory zeitgeist has gone federal. Other states have attempted to undercut Delaware in what amounts to a slash-and-burn race to the bottom to woo fickle industries inside their borders. Cash- and job-strapped states are practically standing out on the street corner, displaying their corporate incentive packages, desperately hoping that a limo with a Fortune 500 executive will drive by, pick them up and rescue their economy.
Much of the consumer finance and credit card industry is still based in Wilmington, Delaware. In the early '80s, Delaware was one of the first states to eliminate its cap on bank interest rates, a move that brought hordes of banks into the state, where they could charge consumers who lived all over the nation whatever interest rates they wanted. This was bad news for the American people, who quickly fell into debt vassalage to the banks, but good for Delaware's economy. With its new finance fiefdom, Wilmington blossomed into a modern East Coast technocratic capital, and to this day owes its prosperity and skyscraper-filled downtown to Barclays, Chase and Citigroup.
But just as important, other states have since mimicked Delaware's strategy, eliminating their usury laws one by one in an effort to capture Delaware's deregulatory jackpot.
So the Delaware Chancery's recent usurpation of the legal process is only the latest development in the state's grifter approach to state governance, where all laws and institutions are for sale to the right price from a classy corporate client. But the Chancery's power-grab has the frightening potential to transform the nature of American justice where any corporation is concerned. If the court system itself becomes just another bargaining chip in the inter-state battle to win corporate addresses, we're in for serious trouble. But even the problem stays contained to Delaware, the huge proportion of U.S. corporations housed in the state give the move tremendous significance.