The current spec says: This defines a new shape that is the smallest contour (in the shrink-wrap sense) that includes all the points that are the shape-margin distance outward in the perpendicular direction from a point on the underlying shape.
For
<div style="width: 100px; height: 100px; float: left;
shape-outside: padding-box; border: 50px solid yellow; shape-margin: 40px"></div>
... a lot of text
According to the spec, the div should create a 180x180 rectangle with rounded corners with radius=40.
This picture contains the rendered result with non-rounded rect (in Firefox) or rounded rect (in Chrome content_shell with a patch for https://crbug.com/1305037).

I'm not sure which one is better, but the latter conforms to the current spec. WDYT?