Shareholder Bylaws, Shareholder Nominations, and Poison Pills

Abstract

Shareholder bylaws limiting or directing board action raise a tough and fascinating question of statutory interpretation under state law as well as an important policy question. In particular, over the last decade shareholders have sought to use bylaws to limit poison pills and to grant shareholders access to the corporate proxy materials to nominate directors. This paper argues that an expansive, although not unlimited, shareholder power to enact bylaws is both a plausible interpretation of Delaware's statutory scheme and desirable as a policy matter. Shareholder bylaws that set general rules of corporate governance and procedure should be valid unless more specific statutory provisions remove a specific matter from the bylaw power. Applied to poison pill and proxy access bylaws, both are valid under the general analysis, although poison pill bylaws may not be valid due to a more specific provision of Delaware law. The SEC should require boards to include bylaw proposals unless the particular proposal is clearly invalid under relevant state law. Board bylaws and certificate provisions could limit shareholder bylaws in some corporations, but it is likely that in many corporations boards will not be willing or able to enact such limits.

Keywords: bylaws, proxy access, shareholder nominations, poison pills

JEL Classification: G30, K22, L23