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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.
This paper takes issue with the increasingly influential view that companies should be completely free to opt out of corporate law rules by adopting appropriate charter provisions. I argue that the contractual view of the corporation, on which supporters of free opting out rely, offers substantial reasons for placing limits on opting out. The analysis focuses on opting out done by charter amendment, after a company has been formed, and highlight the differences between opting out by charter amendment and opting out in the initial charter. Analyzing the informational and collective action problems involved in the charter amendment process, I conclude that the case for placing limits on opt-out amendments is so compelling that even strong believers in free markets should recognize the need for such limits. I also provide criteria for determining the issues with respect to which, and the circumstances under which, opting out by charter amendment should be prohibited or restricted.
Presents in-depth, comparative analyses of German, UK and US company laws illustrated by leading cases, with German cases in English translation.
In 2012, the New York Stock Exchange changed its policies to prevent brokers voting shares on corporate governance proposals where they had not received instructions from beneficial owners. Although the change was intended to protect investors and improve corporate governance, it has had the opposite effect: a significant number of U.S. public companies are no longer able to amend important parts of their corporate charters, despite the support of their boards of directors and overwhelming majorities of shareholders. Their charters are frozen.This paper provides the first empirical and policy analysis of the broker voting change and its significant unintended consequences. I provide empirical evidence that the broker voting change has resulted in the failure of more than fifty charter amendments at U.S. public companies, despite board approval and overwhelming shareholder support, and that hundreds more companies have their charters frozen as a result of the change. These costs substantially outweigh the negligible benefits of the broker voting change. I compare a number of solutions to address these problems, and identify several that would be preferable to the current approach.