In 2007, Delaware’s Department of Finance wrote that Sarbanes-Oxley had already had a negative affect on Delaware’s corporate law related revenues. Dodd-Frank will clearly have additional negative impacts on the future of Delaware’s corporate law practice. However, Hank Greenberg, former head of AIG and a major investor in AIG, relates another problem that is eating away at the benefits of incorporating in Delaware. From the Wall Street Journal op-ed:
The $85 billion loan extended to AIG carried an enormously high interest rate of 14.5%. I believed all along that the government severely overstepped its role by taking preferred stock with an option to convert into AIG common stock as additional consideration for the loan it gave to AIG.
All of these transactions and the stock issuance were done without shareholder approval, a clear violation of Delaware law, the state in which AIG was incorporated.
Almost 1/2 of Delaware’s operating budget revenues are directly related to Delaware serving as the incorporation capital of the country. The reason that we’re an incorporation capital is our 100+ years of corporate law practice within our Chancery Court. It is clear that Delaware could sue the Federal Government for violating our corporate laws. Why won’t we sue? Maybe because the Attorney General is the son of the Vice President. If we don’t enforce our laws, they become increasingly superfluous.
In the end, if companies don’t need to incorporate in Delaware, they won’t. As they begin to incorporate in other locales (which has been an increasing trend), Delaware’s potential revenue bonanza will come to an end. The clock is ticking…