Posted by Itai Fiegenbaum (St. Thomas University), on Tuesday, November 3, 2026
Itai Fiegenbaum, an Associate Professor at St. Thomas University, has authored a significant analysis of Delaware’s vaunted corporate law judiciary, exploring a paradox that led to substantial legislative changes in 2025. His research, forthcoming in the American Business Law Journal and part of the Controlling Shareholder Series, delves into how a judiciary renowned for its sophisticated understanding of corporate law and its adept navigation of political currents managed to inadvertently provoke a significant legislative backlash. This backlash resulted in the hurried enactment of amendments to Delaware’s corporate code, which fundamentally altered decades of judge-made fiduciary duty doctrine and curtailed shareholder inspection rights. This article, based on Professor Fiegenbaum’s extensive research, examines the events and underlying dynamics that led to this pivotal moment in corporate governance.
The Delaware Judicial Enigma: Navigating Corporate Law and Political Currents
Delaware’s judicial system has long been the undisputed leader in corporate law within the United States. Its judges are not only deeply versed in the intricacies of corporate statutes and case law but also possess a keen awareness of the political forces that solidify Delaware’s status as the preferred jurisdiction for publicly traded corporations. This institutional sophistication has historically enabled Delaware’s courts to skillfully address challenges to the state’s corporate law franchise, often without inviting overt confrontation.
However, a critical juncture was reached, culminating in the 2025 amendments to Delaware’s corporate code. These amendments significantly reshaped established fiduciary duty principles and restricted shareholder inspection rights, prompting questions about how a judiciary so adept at managing political threats could find itself at the center of such a legislative upheaval. Professor Fiegenbaum’s research posits that the key lies in the judiciary’s failure to recognize a particular constituency – controlling shareholders – as a politically potent force capable of threatening Delaware’s dominance.
The Bear Stearns Case: A Precedent of Deference
To understand this paradox, Professor Fiegenbaum points to the Delaware Court of Chancery’s handling of litigation surrounding the federal government’s rescue of Bear Stearns during the 2008 financial crisis. In the throes of a global financial meltdown, the Federal Reserve facilitated a merger between the beleaguered investment bank Bear Stearns and JP Morgan Chase to avert a complete collapse. This transaction, brokered under immense pressure, featured aggressive deal protections designed to secure shareholder approval. These measures immediately raised significant questions under Delaware corporate law.
When shareholders subsequently challenged the transaction, the Delaware Court of Chancery made a notable decision: it stayed the proceedings, deferring to a parallel litigation already underway in New York. This was a departure from the court’s usual practice of insisting on adjudicating disputes involving Delaware corporations. Instead of strictly applying Delaware precedent, which might have complicated or even obstructed federal efforts to stabilize the financial system, the court opted to step aside.
This decision, while unusual, was consistent with Delaware’s long-standing strategic imperative to protect its corporate law franchise. At the time, federal intervention in corporate affairs was widely perceived as a primary threat to Delaware’s preeminence. Adhering rigidly to established Delaware precedent risked creating friction with federal authorities. By deferring the litigation, the Delaware judiciary demonstrated its capacity for institutional judgment, prioritizing the state’s broader interests when confronted with significant political stakes. This instance exemplifies how Delaware’s courts, when recognizing a threat to their jurisdiction, can exercise strategic deference.
The Unseen Threat: Controlling Shareholders and the Dominant Narrative
Professor Fiegenbaum’s forthcoming article, "The Controlling Shareholder Amendments Reconsidered," offers a compelling explanation for why this ingrained institutional sophistication failed to prevent the controlling shareholder backlash. The central thesis is that Delaware’s judiciary, despite its expertise in identifying and managing political threats, simply did not recognize controlling shareholders as a sufficiently powerful constituency to pose a threat to the state’s corporate law franchise. The judiciary, therefore, could not respond to a threat it had not perceived.
Traditional analyses of American corporate governance have predominantly focused on the model of dispersed ownership, emphasizing managerial agency costs and board-centered accountability. In this framework, corporations with controlling shareholders were often relegated to the status of exceptions to the dominant paradigm. Consequently, prevailing political economy accounts tended to frame shareholder interests primarily in opposition to managerial interests. Crucially, these accounts often failed to adequately distinguish between different classes of shareholders, overlooking the distinct political power that controlling shareholders could wield when their interests were threatened. This scholarly framing, Professor Fiegenbaum argues, shaped both academic assumptions and judicial instincts, obscuring the significant political leverage that controlling shareholders could mobilize.
Eroding Private Benefits: The Courts’ Expansionist Stance
The marginalization of controlling shareholders within the dominant narrative of American corporate governance contributed to a series of judicial decisions that expanded doctrines detrimental to their private benefits of control. Delaware courts progressively broadened the definitions of "control" and "self-dealing," thereby subjecting a wider array of transactions to heightened judicial scrutiny. This meant that actions previously considered within the purview of a controller’s discretion were increasingly subject to legal challenge.
Furthermore, the expansion of the books and records jurisprudence subjected controlling shareholders to what Professor Fiegenbaum terms "sunlight overload." This doctrine, allowing shareholders broad access to corporate records, enabled them to uncover potential misconduct or undisclosed dealings that controllers might have preferred to keep private. Delaware’s reliance on reputational sanctions, including the publication of scathing judicial opinions and pointed rebukes, amplified the consequences of this increased transparency. The judiciary’s pronouncements, while intended to uphold corporate governance standards, inadvertently intensified the scrutiny on controlling shareholders, potentially exposing their private dealings and eroding their ability to operate with discretion.
The Tipping Point: High-Profile Decisions and Political Mobilization
The cumulative effect of these judicial expansions, however, proved to be more than merely doctrinal. A series of high-profile decisions by Delaware courts directly implicated and embarrassed some of the most influential figures in American business. These rulings transformed what might have been perceived as mere doctrinal pressure into tangible political mobilization. Controlling shareholders, who had been operating under the assumption that they were primarily subjects of corporate regulation, began to assert themselves as a unified constituency capable of reshaping the rules of the game.
This mobilization culminated in the legislative efforts that led to the Controlling Shareholder Amendments of 2025. These amendments represented a direct response to what controlling shareholders perceived as an overreach by the judiciary. They substantially altered the legal framework that the Delaware judiciary had painstakingly developed over decades, effectively dialing back some of the more expansive doctrines and curtailing the broad inspection rights that had become a source of contention.
Implications and the Future of Corporate Governance
Delaware’s experience in this instance serves as a potent illustration of a fundamental limitation inherent in even the most sophisticated institutional structures. A judiciary exceptionally skilled at navigating and managing political threats cannot effectively defuse a threat that it fails to recognize. Professor Fiegenbaum’s analysis underscores the critical need to look beyond traditional judicial doctrine and familiar sources of political pressure when examining the evolution of corporate law. It highlights the overlooked power of constituencies whose influence has been obscured by conventional accounts of corporate governance.
The implications of these events are far-reaching. The 2025 amendments, by directly impacting fiduciary duties and shareholder rights, signal a potential shift in the balance of power within Delaware corporations. The amendments may introduce greater certainty for controllers by clearly defining the boundaries of their actions and limiting the scope of potential challenges. However, they could also diminish the avenues for minority shareholders to seek redress or hold powerful controllers accountable, potentially leading to new forms of agency problems or governance failures.
The response from various stakeholders is likely to be multifaceted. Institutional investors, who often rely on Delaware’s robust legal framework to protect their investments, may express concerns about the potential dilution of shareholder protections. Corporate management, particularly in companies with strong controlling shareholders, might welcome the increased predictability and reduced litigation risk. Legal scholars will undoubtedly continue to dissect the long-term consequences of these legislative changes on corporate behavior, market efficiency, and the overall health of corporate governance.
Professor Fiegenbaum’s research provides a critical lens through which to understand this pivotal moment. It reminds us that corporate governance is not solely a matter of legal rules and judicial pronouncements but also a dynamic interplay of political power, economic interests, and evolving constituencies. The failure to recognize the political agency of controlling shareholders led to a significant legislative intervention, reshaping the landscape of corporate law in Delaware and offering valuable lessons for the future of corporate governance across the United States.
The article by Itai Fiegenbaum is available for download on SSRN.
