The Delaware Brand

Branding is big these days. Indeed, a brand can be the single biggest driver in a company’s value at market.

Global brands agency Millward Brown recently announced that Apple has overtaken Google as the world’s most valued brand. Millward Brown estimates that the vaunted Apple brand is worth $153 billion, almost half Apple’s market capitalization.

So what is Delaware’s best brand, and what is it worth?

Wilmington unremarkably touts itself on 70’s-era “parks and recreation” redwood signs as a “place to be somebody.” (Value to residents after $25 depreciation: $0.) First State promoters might argue that tax-free shopping, a fine collection of grand estates and museums, or the Delaware beaches are the best Delaware brands, creating value for Delaware residents.

Those are nice, but the single best brand, the biggest driver of our economy, the source of thousands of jobs, tax revenue and public and private wealth in this State: the Delaware Corporation.

Don’t believe it? Check out Governor Markell’s recommended $3.4 billion budget for 2012. For 2012, Markell projects a whopping 41.8% of the State’s budget revenue ($1.43 billion) will come from fees directly produced by State’s favorable corporation laws. (Incorporation Revenue (24.7%); Abandoned Property (Escheat) (11.5%); Bank Franchise Taxes (2.4%) and Corporate Income Tax (3.2%)). (Source: Delaware Office of Management and Budget http://budget.delaware.gov/fy2012/budget2012.shtml.)

The best part about this windfall shows up in Markell’s spending projections for 2012. There is little, if any, real cost for carrying the State’s lucrative incorporation franchise. While public education, health and social services, and correction expenses draw a combined 77.8% out of the State’s 2012 till, the judicial branch costs the State just 2.7% of its annual operating budget.

This all means the State makes a lot more money than it spends on its incorporation business. These revenue figures do not even account for the jobs(income tax) generated by Delaware’s megawatt incorporation franchise, or the ancillary benefit to the State from venue-driven industries such as corporate bankruptcies and patent litigation.

Indeed, it could be argued that the State’s incorporation franchise makes the Delaware Corporation the State’s most powerful, valuable and best brand, not only for those companies who choose to incorporate in Delaware, but also to the politicians and residents who benefit from the fiscal largesse bestowed on this State, all at relatively no cost.

In light of all this, you would think that our local press would go wild when folks in Washington, D.C. get the idea that corporate governance is best dictated by the feds. You would think the local paper would write an OpEd every time Chuck Schumer or Carl Levin showed up on Capitol Hill pitching their latest versions of the U.S. Corporate Code. You would think the Delaware voters would hold the Biden, Carper, Coons and Kaufman posse accountable every time a bill gets passed even mentioning these issues.

Unfortunately, that’s hardly the case. The Dodd-Frank Wall Street Reform and Consumer Protection Act became law on July 21, 2010. Among other things, the Act inflicts new and broad influence on areas once sacred to State corporation laws: executive compensation, corporate governance, and shareholder rights. And guess who voted for it?

Federalization of corporate governance and shareholder rights – issues that run to the core of the statues in the General Corporation Law of the State of Delaware, and decisions rendered by the State’s Court of Chancery – is a very real threat to the sovereignty of States like Delaware to pass laws and make judicial determinations for their corporate residents. If this sovereignty is eviscerated, the effect on Delaware’s budget, and all of Delaware’s residents would be devastating.

New legislation exists that would further erode Delaware’s influence in the corporate domain. And yet, our Congressional delegation seems strangely relaxed, even uncaring by this prospect. No alarm has been sounded. Our media and politicians seem unconcerned that our prominence in the corporate world would be transferred from Dover to Washington. Does anyone say anything about the impact such loss would have on the ability of this State to manage its fiscal affairs, requiring tough decisions from our local political leaders?

Indeed, with a virtual $1.5 billion subsidy, Delaware politicians have had it too easy for too long. Could their Congressional counterparts really screw up such a valuable brand?

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About the Contributor

Chris Simon

Chris Simon is an attorney in Wilmington.

3 Comments

  • Thought your article was right on the money…although it would have
    been nice if the “place to be somebody” branding did the trick. 

  • Great article.  Thanks for taking the time to write about this topic. That said, hasn’t the specter (boogeyman) of  the federalization of  state corporate law been hanging over DE’s head for years with nothing to show for it.  In fact, there is probably more risk of competing states taking franchise business from DE than any unified federal law, e.g. MD – REITS and Nevada’s corporate friendly law comes to mind, and for over a hundred years Delaware has successfully maintained its status as the corporate law capital of the country. 
    The fact is that business incorporate in Delaware not just for the statutory law but for the 100+ years of case law that provides certainty and predictability and our a business court, which is 2nd to none. Moreover, because corporate franchise revenue is such a large portion of our state budget, our corporate law remains nimble, progressive and readily adaptable.  Go to a state where franchise income represents only a fraction of state revenue and you will find a lot less legislative focus on updating and changing the law for the better.  This is all to say that I  think the risk of the federalization of corporate law is relatively low even in the face of the Dodd Frank Act, this risk has been present since we first started competing for corporate franchise business many decades ago and that (keep  your fingers crossed) we will likely remain the preeminent state of incorporation going into the foreseeable future.