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Comment by: Kumar Pallav Corporate law: Policy Analysis

Comment on Social Control over Finance: Federal Corporate Law after the Meltdown

Author: Robert B. Thompson New York Alumni Chancellors Chair in Law and Professor of Management

Market collapse reaction in U.S. financial sector leads to significant change in the structure of corporate law. The present paper makes a first step towards providing as how federal and state governments have settled into federalism equilibrium by contrasting approaches to corporate law with a distinct and opposite approach to law-making. This paper investigates the fundamental legal reforms that followed the Great Depression. In this comment I intend to focus on the paper written by Robert B. Thompson and how the author could explain that Delaware, while declining to take on the federal regulation directly, has developed a more effective way of delivering integrated regulation using both federal and state law. The goal of this comment will be to support and contrast the views of Robert B. Thompson, specifically in the issue of shared function of the state and federal governments in which the states have the primary role and federal law takes a supporting function. The author analyzed the new governance challenges and tried to track the answer to the primary policy questionis this issue best resolved by private ordering (which means leaving it to state law) or does it require some form of government regulation (which means putting it within the federal realm of corporate law)? In order to give the answer of this question, author has given the evidence of federal intrusions into the internal governance of corporations that follows in the line of the earlier reforms. These reforms include provisions of insider trading of the Securities Exchange Act of 1934, banning entity loans to insiders, certification requirement of firms financial statement on CEO and CFO and the minimum qualifications of directors via the Sarbanes-Oxley Act of 2002 (Sarbox) .

Comment by: Kumar Pallav Corporate law: Policy Analysis

On the other hand author analyzed the role of Delaware. It has declined to take on the federal regulation directly and has developed a more effective way of delivering integrated regulation using both federal and state law. Delaware has laid down a marker based on the necessity of linking disclosure to shareholders with protection of the space given shareholders to make a decision. However, It is notable that look of federal state regulation in corporate governance will depend on whether the trend in these Delaware cases effectively linking disclosure and substantive protection of shareholder space spreads to related areas. Paper reveals a surprising result that Delaware courts during the last decade have shown how state courts can use the federal disclosure system to regulate corporate transactions in a more integrated way than is done in federal law. Law-making at the federal level occurs more regularly by SEC rule-making to fill gaps delegated to the agency in the Congressional statutes. The SEC, like any administrative agency is subject to capture by the host of regulated industries who have great incentives to seek to influence its regulation and the positive incentives of the agency dont seem as great as those of Delaware. This supports the fact that state law should govern the internal affairs of the corporation. At the other end of the spectrum, the analysis explore that in an economy where so few transactions are off the grid of an interconnected global market, state law less often seems the appropriate level for government response. Additionally, the need for domestic companies to meet numerous and sometimes conflicting standards of multiple states do not support state law in corporation law for future. Author supports that this argument against federalism has less power in corporate governance. Author suggests that the state of incorporation determines things like governance and the relationship between managers and shareholders. This undercuts the multistate inefficiency argument for federalism in corporate governance. The analysis explores the fact that The SEC has reworked its rules on disclosure of compensation twice in recent years. But the pay of chief executives has grown to a multiple of the average worker that is greatly higher than a generation ago. This fact leave a scope of further

Comment by: Kumar Pallav Corporate law: Policy Analysis

analyses of impact of SECs regulation on executive compensation .The author did not explain these issues which may certainly put some light on the reasons behind the failure of federal and state laws to completely control this core issue of internal corporate affairs . I admire finding in this paper which bring to light the shared function of the state and federal governments in which the states have the primary role and federal law takes a supporting function. This paper addresses the central issue of this bipolar federalism that corporate transactions remain subject to two sets of rules reflecting different philosophies to regulation. This paper gives a message that how state courts can use the federal disclosure system to regulate corporate transactions in a more integrated way than is done in federal law.