Review of What’s the Matter with Delaware?: How the First State Has Favored the Rich, Powerful, and Criminal—and How It Costs Us All by Hal Weitzman

By Sean Vanatta

What’s the Matter with Delaware?: How the First State Has Favored the Rich, Powerful, and Criminal―and How It Costs Us All, Hal Weitzman. Princeton: Princeton University Press, 2022.

For 36 years, Joe Biden represented Delaware in the United States Senate. Critics, uncharitably, accused him of representing MBNA, a credit card issuer based in Wilmington (acquired by Bank of America in 2005). Biden’s reputation stemmed from his defense of card issuers specifically—notably through the 2005 Bankruptcy Reform Act—and corporate America more generally. A substantial majority of the nation’s largest companies exist in Delaware as a matter of law, including two-thirds of the Fortune 500 and 93 percent of NSYE listed companies, giving the First State an outsized influence over the global economy. Biden, their senator, guarded their interests.

In What’s the Matter with Delaware, Hal Weitzman uses Biden’s career as an entry point into America’s corporate capital, uncovering, as the subtitle implies, the ways Delaware’s role as a corporate, financial, and tax haven—nestled within the jurisdiction of the United States—has benefitted the state and its elites at the expense of virtually everyone else.

The book unfolds in three parts. The first is a steamrolling, muckraking polemic, which uncovers and denounces the many ways Delaware shields businesses and billionaires from taxes and public scrutiny, while reaping proportionally outsized revenues. These strategies include efficient, inexpensive, and confidential company formation (250,000 new businesses register in Delaware each year); low business taxes; creative intellectual property rules; and aggressive use of escheatment to seize abandoned property. “The end result,” Weitzman concludes, “is that Delaware’s tax policies hurt other US states, benefit the wealthy, and create little other economic value” (66). At the foundation of these policies is “the Franchise,” Delaware’s favorable business law environment, which operates through a political structure, “the Delaware Way,” in which a small elite skillfully protects their interests through antidemocratic dealmaking.

In the second section, Weitzman takes a historical detour, situating the Delaware Way in the state’s long history, beginning in the colonial era. Here, the book focuses on Delaware’s racial politics. Delaware remained a slave state until the US Civil War and Black Americans continued to be marginalized thereafter. Biden is a key figure in this story, appearing as a staunch opponent of court-mandated busing, implemented to combat entrenched school segregation. Overall, Weitzman argues, Delaware’s racial politics are typical of the state’s antidemocratic political order, where significant social issues are papered over through backroom negotiations rather than addressed through legitimate democratic dialog.

The third section returns the focus to contemporary policy, specifically how Delaware advances its interests and protects its coveted Franchise. This is a story, on the one hand, of corporate lawmaking within the state. Weitzman shows how the Corporation Law Council, a group of elite Delaware lawyers, meets in private every year to draft amendments to the state’s corporate law code, which the legislature invariably rubber stamps. On the other, Weitzman examines how powerful Washington officials, Biden most prominently, have worked on behalf of the state to advance corporate interests and mitigate potential threats.

Weitzman, a former Financial Times journalist, is an engaging writer, and several compelling themes weave through the book. The first focuses on the enduring tension between local democratic governance and national—and global—markets: how should we balance a democratic interest in local self-determination against a desire for efficient markets governed by uniform rules? The book strongly implies that Delaware’s control of the rules that govern most American corporations is suboptimal, but it does not offer a compelling alternative. Should each state create and apply its own corporate law to companies operating in its borders? Should the federal government assume responsibility? Who should rule, legal technocrats or the people?

A second theme considers the ways havens like Delaware straddle the line between legitimacy and illegitimacy within the global capitalist economy. Delaware makes itself a home for legal “tax optimization” and illegal tax avoidance. Delaware’s business formation laws enable both. Criminals, in turn, prefer Delaware to seedier havens because it enjoys the legitimacy of the United States. The state is, to use sociologist Mark Granovetter’s term, embedded in the American political and social structure, making it a particularly appealing place from which to engage in anti-social behavior.

The preceding themes link to a third: jurisdictional competition. Delaware—and other small havens—benefits from its small size. It can charge less because any revenue is proportionally more valuable in relation to its budget. Delaware charges companies $50 to incorporate and $89 to form an LLC, with annual franchise fees running from $175 to $250,000 for the very largest firms. Registrations, franchise fees, and related revenues in turn accounted for 38 percent of the state’s general fund. Further, the state’s elite can coordinate effectively because their numbers are small and their interests homogeneous. Delaware’s political elite, corporate managers, and stockholders benefit. The rest of us lose—lose in the case of Delaware, but also lose in a more general sense when political jurisdictions beg capital to locate within their borders.

For its many strengths, the book leaves a great deal on the table. Weitzman tends to lump rather than split. The answer to “what’s the matter with Delaware?” is certainly “a lot!”, but more attention to differences in state policy would have led to more compelling analysis. For example, Delaware’s status as a company state (to use Ralph Nader’s aphorism) derives from a long charter mongering tradition, one built on institutions of corporate law and chancery jurisprudence. This is distinct and separate from Delaware’s status as an on-shore banking haven, a place where you likely remit your Visa or Mastercard payments if you still pay by check. Delaware recruited banks like Chase in the early 1980s in response to deindustrialization, and made access to its favorable banking rules contingent on local employment. Corporations and LLCs can form in Delaware without directly employing anyone; the banking laws required banks to employ at least 100 people in Delaware. Other states—notably New York—still lost out through this policy, as do consumers who pay higher credit prices. Nevertheless, the corporate and financial haven stories are meaningfully different and merit more nuanced treatment.

Likewise, the story of racial tension in Delaware is important, but its connection to the “Delaware Way” remains unclear. Delaware’s practices of Jim Crow lynching and segregation, as well as post-Civil Rights opposition to racial integration, are more typical than exceptional and do little to shed light on how Delaware’s corporate politics and policies were formed and maintained. A more convincing narrative, perhaps, would have focused on the institutions of elite corporate sociability or corporate lawmaking. We learn, for instance, that the Corporation Law Council (CLC) has been crafting Delaware law for 50 years. Unpacking that story—when and why the CLC was established and how it has maintained its position—seems more germane.

For the strength of its initial polemic, the conclusion is also muted. Weitzman proposes modest reforms of corporate disclosure and Delawarean corporate lawmaking, solutions that while incrementally useful fail to rise to the stakes raised by the book. The book raises significant questions about the boundaries of state sovereignty, about expertise and lawmaking, about legitimate and illegitimate corporate practices, and about the relationships between democracy and capitalism. It stops well short of offering compelling answers to any of them.

Sean Vanatta is a senior fellow at WIFPR.