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Private Ordering with Shareholder Bylaws

2011; Fordham University School of Law; Volume: 80; Issue: 1 Linguagem: Inglês

0015-704X

D. Gordon Smith, Matthew Wright, Marcus Hintze,

Corporate Insolvency and Governance

In this Article, we propose legal reforms to empower shareholders in public corporations. Most shareholders participate in corporate governance in three ways: they vote, they sell, and they sue. We would expand the menu for shareholders in public corporations by enabling them to contract using shareholder bylaws. We contend that private ordering will improve shareholder monitoring of managers and create laboratories of corporate governance that benefit the entire corporate governance system. INTRODUCTION 1 I. THE SHAREHOLDER EMPOWERMENT DEBATE 4 II. SHAREHOLDER BYLAWS IN DELAWARE 9 A. The Conflict Between DGCL Section 109 and Section 141(a) 9 B. CA, Inc. v. AFSCME and the Scope of Shareholder Power 14 1. Bebchuk v. CA, Inc 14 2. Certification and the Road to CA, Inc. v. AFSCME 16 3. CA, Inc. v. AFSCME 17 4. Bebchuk v. Electronic Arts 24 C. Amendments to the DGCL 26 III. SHAREHOLDER BYLAWS IN THE SEC 29 A. The SEC’s New Proxy Access Rules 32 B. Response to the New Rules 34 IV. IN DEFENSE OF PRIVATE ORDERING WITH SHAREHOLDER BYLAWS 37 A. The Affirmative Case for Private Ordering 38 1. Micro-benefits of Private Ordering 38 2. Macro-benefits of Private Ordering 41 B. Constraints on Private Ordering in Public Corporations 42 1. “Any provision not inconsistent with ...” 42 2. Majority Vote Requirement 44 3. Director Counter-bylaws 45 4. The Limits of Rule 14a-8 46 5. Self-interest 48 C. Facilitating Private Ordering in Public Corporations 48 1. Amending DGCL Section141(a) 48 2. Amending DGCL Section109(b) 51 3. Revisiting Delaware Precedent 51 4. Amending Rule 14a-8 52 CONCLUSION 54 † Glen L. Farr Professor of Law, J. Reuben Clark Law School, Brigham Young University. An early version of this paper was presented at the Notre Dame Law School Symposium on The Future of Fiduciary Duties in Corporate Law and at work-in-progress sessions at BYU Law School, Indiana University Maurer School of Law, and the University of Colorado Law School. The authors are grateful to Kif Augustine Adams, Jim Backman, Brian Broughman, Vic Fleischer, Jim Gordon, Reese Hansen, Tom Lee, Brett McDonnell, David Millon, Dave Moore, Donna Nagy, Larry Ribstein, Lisa Grow Sun, Margaret Tarkington, and Julian Velasco for useful and supportive comments, discussions, and suggestions. †† Associate, Linklaters-Hong Kong. ††† J.D. candidate 2011, J. Reuben Clark Law School, Brigham Young University.