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11 - Federalism versus Federalization: Preserving the Division of Responsibility in Corporation Law

Published online by Cambridge University Press:  04 August 2010

By
E. Norman Veasey ,
Shawn Pompian  and
Christine Di Guglielmo
Edited by
F. Scott Kieff  and
Troy A. Paredes
F. Scott Kieff
Affiliation:
George Washington University, Washington DC
Troy A. Paredes
Affiliation:
Washington University, St Louis
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Summary

An efficient division of responsibility and the specialization that necessarily accompanies it lie at the heart of any successful business enterprise. The same principle applies with equal force to the institutions charged with regulating those enterprises or adjudicating their conduct. Since the enactment of the Securities Exchange Act of 1934 (1934 Act), the prevailing division of responsibility in the United States has broadly followed a federal model: the federal government has limited itself (with important exceptions) to disclosure issues in regulating the flow of information from public corporations to the securities markets, and the states have established the legal framework governing a firm's internal affairs. There is also a third, ambiguous area that some describe as the regulation of voting procedure. That is a term that has some surface legitimacy, but there is a concern that it may sometimes be used as a bootstrap argument for increased federalization.

The division of authority between federal disclosure regulation and state primacy over internal affairs naturally led to the evolution of specialized institutions to govern different facets of business. The federal government, particularly the Securities and Exchange Commission, developed an elaborate regulatory apparatus devoted to monitoring and controlling the disclosure of information to the markets. For their part, state lawmakers defined the rights and obligations of a firm's owners and managers, as well as governing state disclosure issues.

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Chapter
Information
Perspectives on Corporate Governance , pp. 351 - 396
Publisher: Cambridge University Press
Print publication year: 2010

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