Abstract

In the standard rhetoric of the corporate law literature, federalism is "the genius of American corporate law" - an engine of efficiency, motivating a race (or at least a leisurely walk) to the top. Some have dissented, suggesting that the prevailing wisdom is wrong as to either the direction or the vitality of the promised race. But the latter critiques are too forgiving. The standard account misunderstands the basic question; its answer, as such, is not even wrong. Rather than weighing in on the "race debate," thus, I challenge the fundamentally flawed discourse behind it. I offer a distinct framework for evaluating the role of federalism in American corporate governance, which points to distinct measures of efficiency and a reinvigorated study of institutional design in corporate law. To begin, I challenge the literature's merger of two distinct competitions - state and managerial - into one. More critically, I decry the resulting linkage between corporate law's central goal-efficient regulation of the separation of ownership and control - and the central element of its institutional design - federalism. That rhetorical linkage has led us astray in important respects: First, it has bootstrapped a role for federalism in advancing not merely the quality of corporate law, but also the substantive quality of corporate governance. Second, it has essentialized the role of federalism, casting it as indispensable to the production of good law. Dominant as these conceptions are in the discourse of corporate law, neither is true. I suggest an alternative account of federalism's contribution to American corporate governance. Federalism is not directed to the traditional goal of corporate law - regulation of the vertical separation of ownership and control within the firm. Rather, it advances a distinct, horizontal goal of regulating the relationship of the firm as a whole with state regulators external to it. Given as much, a federal regime is not dictated by a commitment to efficiency in corporate law. Rather, it is an institutional design choice, to be evaluated for its efficacy and utility - as well as its limitations - in one area of corporate law versus another.