As part of the Delaware Law series the Harvard Law School Forum on Corporate Governance and Financial regulation is currently running, there was a recent blog post analysing the 'failure of federal incorporation law' in the US and more particularly, examining the question of why Delaware continues to dominate corporate law in the US.

The key points of the chapter are summarised briefly below.

• State-to-state competition debate: While there is wide consensus that Delaware’s pre-eminence was the result of decades of state to state competitive pressures there is no consensus on whether the competition has been 'a salutary or nefarious one—a race to the top or to the bottom'. Race-to-the-top theorists argue that the 'estimated $500m annual prize' incentivises states to compete to make better, more efficient, corporate law in an effort to discourage shareholders from causing a reincorporation outside of Delaware. Race-to-the-bottom theorists argue that the prize incentivises states 'to pander to managerial interests because managers are the constituents that control the initial incorporation decision'.
• Reframing the debate: the federal-state relationship incentivises Delaware to enact moderate, status-quo oriented corporate law: In 2003, the author notes that Mark Roe (in an article published Delaware’s Competition, 117 Harv. L. Rev. 588, 591–92 (2002)) reframed the debate, arguing that viewing it as a state-to-state competition was misconceived given Washington’s tendency to take corporate lawmaking power away from the states. The author quotes Roe as follows: 'we have never had, and we never could have had, a full state-to-state race in corporate law.' The impact of this federal-state structure, according to the author's analysis of Roe's argument is that broad political concerns are kept out of Delaware corporate law (as state level deals between managers and investors in Delaware are privileged over external interests) except where an issue attracts Washington's attention. Delaware therefore holds the 'agenda-setting power' but is 'constrained by the threat that Congress, federal courts, the Securities and Exchange Commission, or the New York Stock Exchange will intervene to pre-empt Delaware on a particular issue'. This, according to the author's analysis motivates Delaware to forge a moderate, status-quo oriented path between managers and investors, entrenching a quasi-contractual paradigm
• Why does congress permit Delaware to have 'the first crack at making corporate law?': The author suggests that the answer to this, is the failure of congress to implement federal incorporation due to lack of consensus at federal level. The author bases this on historical analysis of attempts at reform. His view is that Congress had the opportunity in 1908 to enact a federal incorporation law, rather than amend the existing Sherman Act, but failed to do so despite 'widespread dissatisfaction with the Sherman Act, populist anxiety over the power of large corporations, and big business publicly embracing the general notion of coming under federal control'. He adds that an explanation of the failure to implement federal incorporation also needs to account for 'Roosevelt’s intransigence, coupled with his unorthodox views about the proper role of corporations in society, which translated into idiosyncratic strategic choices that helped to doom the bill’s [The Hepburn Bill's] survival'. The author concludes that 'strong federalism norms, as expressed in deep-seated fears of centralized power and an ongoing commitment to states’ rights, significantly constrained the ability of Congress to implement federal incorporation. These norms should continue to inhibit the complete displacement of state corporate law'.

[Sources: Harvard Law School Forum: Delaware Law Series: The Failure of Federal Incorporation Law: A Public Choice Perspective 07/07/2016]