ers refused to surrender their hopes for a more federal ro ighout the 1930s, there were repeated corporate law. All failed Preserving federalism Legislative inaction is inherently ambiguous l that can be said with ainty is that Con- nevertheless has rou- tinely rejected regula state law and create a de As the Court noted in its 1987 deci sion in cts co A Dynamics Corp,“ State ation of corpo tion of entities whose attributes are a produc of state law” The Court further noted that it " is business landscape in this country forstates to and to define the rights ng th for the states. Around the beginning of the last century, howev-I shares "Concluded the Court, "No principle of corporation law er,economic progressives began arguing for federal preemption and practice is more firmly established than a State's authority frequently in response to various corporate scandals of the to regulate domestic corporations day. After the Great Crash of 1929, serious consideration was It is state law, for example, that determines therights of share- given to creating a federal law of corporations holders. State law tht us determines such questions as which mat The New Dealers'initial response to the Crash, of course, ters the board of directors, acting alone, may authorize and consisted of the now familiar federal securities laws. The key which must be authorized by the shareholders. State law typi statute here is the Securities Exchange Act of 1934, which crit- cally requires, for example, that certain control transactions ics claimed was a federal attempt to usurp corporate gover- such as mergers or sales of substantially all corporate assets be nance powers. On its face, however, the Exchange Act says approved in advance by the shareholders, and establishes the nothing about regulation of corporate governance. Instead, the vote required (often a supermajority) for shareholder approval Acts basic focus is trading of securities and securities pricing. of such matters. State law likewise regulates the conduct of Virtually all of its provisions are addressed to such matters as shareholder meetings, specifies who may call such meetings, the production and distribution of information about issuers and prescribes whether (and the procedures by which)action and their securities, the flow of funds in the market, and the may be taken without a shareholder meeting basic structure of the market The Supreme Court also has consistently recognized that While the federal securities laws thus left the internal affairs state law governs the rights and duties of corporate directors and governance of corporations to the states, many New Deal-I For instance, in its 1979 decision in Burks v. Lasker, the Court REGULATION SPRING 2003 27REGULATION SPRING 2003 27 for the states. Around the beginning of the last century, howev￾er, economic progressives began arguing for federal preemption — frequently in response to various corporate scandals of the day. After the Great Crash of 1929, serious consideration was given to creating a federal law of corporations. The New Dealers’ initial response to the Crash, of course, consisted of the now familiar federal securities laws. The key statute here is the Securities Exchange Act of 1934, which crit￾ics claimed was a federal attempt to usurp corporate gover￾nance powers. On its face, however, the Exchange Act says nothing about regulation of corporate governance. Instead, the Act’s basic focus is trading of securities and securities pricing. Virtually all of its provisions are addressed to such matters as the production and distribution of information about issuers and their securities, the flow of funds in the market, and the basic structure of the market. While the federal securities laws thus left the internal affairs and governance of corporations to the states, many New Deal￾ers refused to surrender their hopes for a more expansive federal role. Throughout the 1930s, there were repeated proposals to federalize corporate law. All failed. Preserving federalism Legislative inaction is inherently ambiguous. All that can be said with certainty is that Con￾gress chose not to act. Yet, the Supreme Court nevertheless has rou￾tinely rejected regulato￾ry efforts to preempt state law and create a de facto federal law of cor￾porations. As the Court noted in its 1987 deci￾sion in CTS Corp. v. Dynamics Corp., “State regulation of corporate governance is regula￾tion of entities whose very existence and attributes are a product of state law.” The Court further noted that it “is an accepted part of the business landscape in this country for states to create corporations, to prescribe their powers, and to define the rights that are acquired by purchasing their shares.” Concluded the Court, “No principle of corporation law and practice is more firmly established than a State’s authority to regulate domestic corporations.” It is state law, for example, that determines the rights of share￾holders. State law thusdetermines such questions as which mat￾ters the board of directors, acting alone, may authorize and which must be authorized by the shareholders. State law typi￾cally requires, for example, that certain control transactions such as mergers or sales of substantially all corporate assets be approved in advance by the shareholders, and establishes the vote required (often a supermajority) for shareholder approval of such matters. State law likewise regulates the conduct of shareholder meetings, specifies who may call such meetings, and prescribes whether (and the procedures by which) actions may be taken without a shareholder meeting. The Supreme Court also has consistently recognized that state law governs the rights and duties of corporate directors. For instance, in its 1979 decision in Burks v. Lasker, the Court MORGAN BALLARD Bainbridge.Final 3/13/03 2:34 PM Page 27