2018] UNILATERAL BYLAW AMENDMENTS 3
Over roughly the past decade, corporate direct ors have been utilizing
one of the most potent mechanisms in dealing with shareholder activism and
shareholder litigation: the right to unilaterally amend corporate bylaws.1
While corporate governance arrangements can be tailored using either the
charter or the bylaws,2 modifying the charter requires shareholder approval,3
which can be time-consuming, costly, and uncertain.4 On the other hand,
directors can unilaterally amend the bylaws quickly, at a low cost, and with
certainty: They can simply convene a board meeting and adopt a necessary
1. See generally Albert H. Choi, Fee-Shifting and Shareholder Litigation, 104 VA. L. REV. 59 (2018)
(providing a brief overview about the concerns over deal-related shareholder litigation, perc eived
to be “out of control,” and how that led corporations to adopt fee-shifting and exclusive forum
bylaws); Lawrence A. Hamermesh, Director Nominations, 39 DEL. J. CORP. L. 117 (2014) (discussing
examples of directors’ adopting advance notice bylaws in response to shareholder activism
regarding director elections).
2. There are exceptions, however. For instance, whether to have a super-majority voting,
to allow the directors to issue certain stock without shareholder approval (“blank check preferred
provision”), to exempt directors fr om personal liability for breach of d uty of care, or to have
cumulative voting must be conta ined in the charter. See DEL. CODE ANN. tit. 8, §§ 102(a)(4 ),
102(b)(4), 102(b)(7), 214 (2018) . A staggered (or classified) board pro vision, though it can be
in the bylaws, requires a shareholder approval. See id. tit. 8, § 141(d) .
3. See id. tit. 8, § 242; MODEL BUS. CORP. ACT § 10.03 (AM. BAR ASS’N, revised 2016).
Charter amendment is considered to be a “fundamental” change to the corporation, thereby
triggering shareholder approval requirement. When a proposed charter amendment “adversely
affects” a certain class of shareholders, that class will get to vote on the proposal as a separate
class. See DEL. CODE ANN. tit. 8, § 242(b)(2); MODEL BUS. CORP. ACT § 10.03. For a more detailed
analysis of charter amendments, including the requirements and procedures under the federal
securities laws, see generally Geeyoung Min, Shareholder Voice in Corporate Charter Amendments,
43 J. CORP. L. 289 (2018). For Delaware corporations, there is a small number of exceptions to
the rule. Unless expressly prohibited by the charter, the directors can unilaterally change the
name of the corporation, delete the names of the incorporators, or delete the provisions that
were necessary to effect stock exchange, reclassification, etc., when such changes have become
effective. See DEL. CODE ANN. tit. 8, § 241(b )(1); MODEL BUS. CORP. ACT § 10.05.
4. For a publicly traded company, the company will have to abide by the federal proxy
regulation in securing shareholder approval. See Securities and Exchange Act of 1934, 15 U.S.C.
§ 78(a) (2012); Securities Regulation Section 14A, 17 C.F.R. § 240.14a-8 (2011). Also , influential
proxy advisory firms, such as Institutional Shareholder Services and Glass Lewis, have the policy
of giving negative recommendations at the nex t director election when a firm adopts a charter
provision (materially) adverse to the interests of shareholders, such as staggering the board.
See generally Min, supra note 3 (providing a more detailed analysis). Notwithstanding this, there
are instances where a charter amendment would be more advantageous, especially if the directors
expect little or no shareholder resistance. Because they have the sole power to make an
amendment proposal, they get to d ictate the content and once the amendment has been
adopted, shareholders will be unable to change it unilaterally. DEL. CODE ANN. tit. 8, § 242.