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An interesting blog thread on SOX and federalization of state law.

One of the major debates in corporate law has been over to what extent laws should be determined by the federal government rather than by the states. Since “state corporate laws” is nearly synonymous with “Delaware’s corporate law,” a major portion of the debate was over whether Delaware was “racing to the top” in order to provide regulation superior to that of other states, or “racing to the bottom” in order to accomodate managerial interests at the expense of shareholders.

Panelist bloggers

Intro. Opening statements 1, 2, 3, 4, 5, 6, 7

The SEC is shareholder biased, albeit in its view in a positive way. The shareholder of today is not Ma and Pa Kettle holding 100 shares of AT&T for retirement earnings. Increasingly institutional shareholders dominate the market. Do they need an advocate in DC wedded to prescriptive regulation or can their complaints, if any, be as readily and more equitably addressed by private ordering in State civil law litigation on a case by case contextual environment? Moving corporate governance to DC means increased costs with little effort to determine benefit, an arena for dispute resolution decision making that is not unbiased and portends no guarantee that the guidelines, regs or pronouncements from the banks of the Potomac will enhance long term shareholder value. Those who advocate a drift from the common law resolution of disputes by a highly trained and experienced cadre of jurists to the bureaucracy in DC should be careful what they wish for.

Chief Justice Steele kicks ass. I haven't read all of the posts, but it seems like Steele is the only one who really gets it.

It's one thing to ponder legal issues in abstract, but as an investor, what I care about most is having some auditor's neck on the line, having officers of the company personally liable for their actions, and directors with fiduciary responsibility that can be enforced. I want people with significant reputations and money and personal liberty directly at risk. If they make mistakes, that's fine, we all suffer. If they purposefully defraud investors, I want the long arm of the law to grab them by the scruff of the neck and drag them into a fair and just legal system.

If you're going to try to make the investment world better, then setting up the right incentives is what's important. Rather than independent directors, it's more important to have directors with serious money at risk in the company.

But if you're trying to correct a situation where lots of people broke the law and you want to avoid it in the future, don't change the law, just start enforcing it better.