Shareholder Voice in Corporate Charter Amendments
46 Pages Posted: 1 Mar 2016 Last revised: 27 Jun 2018
Date Written: August 15, 2016
State corporate laws require shareholder approval for corporate charter amendments, but only the board of directors has the power to propose how to amend charters. The directors’ exclusive power over charter amendment proposals creates a potential for managerial opportunism by refusing to propose amendments that empower shareholders or by pursuing amendments that favor managers. While shareholder approval can theoretically serve as a check against such opportunism, dispersed shareholders’ rational apathy and collective action problems, can also prevent them from being effective monitors. Prior scholarship has thus viewed charter amendments with suspicion, but there has been no systematic, empirical examination to confirm or refute the possibilities of managerial opportunism. Based on hand-collected data on charter amendments of the top 250 U.S. companies over the past twenty-one years, this Article demonstrates that the recent trend of shareholder engagement has enabled them not only to check management-initiated amendments, but also to pressure directors into proposing shareholder-initiated amendments. Concerns over managerial opportunism, however, remain valid, as the data reveal subtle ways in which directors have preempted shareholders’ voice with compromised terms. This Article updates our theoretical understanding of corporate charter amendments by reflecting the new dynamic with shareholder engagement, as well as normatively claims that state and federal authorities should secure even-handed procedures so as to give both shareholders and managers a meaningful voice in the charter amendment process.
Keywords: Corporate Charters, Charter Amendments, Shareholder Activism, Compromised Adaptation, SEC, No Action Letter, Institutional Investors, Proxy Advisory Firms, Shareholder Proposals, Default State Corporate Law, Private Ordering
JEL Classification: K12, K22, K23, L21
Suggested Citation: Suggested Citation