UCLA School of Law

This is an invited response to Professor Ann Lipton’s (Colorado Law) article, The Legitimation of Shareholder Primacy, 51 J. Corp. L. 83 (2025).

Lipton’s foundational thesis is that the exercise of corporate power requires social legitimacy.  Shareholder primacy purports to provide the requisite legitimacy by constraining that power in politically neutral ways.  Formal governance procedures make that constraint visible, but those procedures do not always align with shareholder value because they also serve social and symbolic purposes.  When shareholder welfare conflicts with public welfare, corporate law must choose between them. The present highly polarized political environment has generated a series of controversies over issues such as the use of environmental, social, and governance (ESG) metrics in both management and investing, diversity initiatives, climate risk, Elon Musk’s immense compensation package, and directors’ oversight duties that have forced Delaware to make such choices. Delaware’s choices in recent years revealed that shareholder primacy and Delaware law are political after all.   In light of those developments, Delaware’s traditional neutrality is now questioned, as its courts and legislature are accused of taking sides in national political disputes. That politicization helps drive the DExit phenomenon.

This article offers a complementary explanation. The phenomena Lipton identifies can be understood without treating them primarily as manifestations of shareholder primacy’s internal contradictions. They can instead be explained through a public-choice model in which the three principal producers of Delaware corporate law—the Delaware bar, the Delaware legislature, and the Delaware judiciary—act rationally to advance their own institutional interests. What Lipton describes as a crisis in the legitimation of shareholder primacy may therefore also be understood as the destabilization of an interest-group equilibrium