450 – 600 words
Each reply must incorporate at least 2 scholarly citation(s) in APA format. Any sources cited must have been published within the last five years. Acceptable sources include the textbook, scholarly peer-reviewed articles, and the Bible.
(Gaughan, 2018) explained the differences in corporate bylaws and corporate charters on pages 201 – 202 of the textbook. The author described corporate bylaws as typically being the responsibility of the board of directors. Corporate bylaws convey rules pertaining to how the company operates. Corporate charters are official paperwork establishing the chosen state of incorporation. Corporate charters are also known as articles of incorporation and proclaim the company’s purpose and what classes of shares will be offered by the company.
(Gaughan, 2018) further noted that major changes to the company’s corporate charter most often have to be approved shareholders. These changes may be related how the company operates. The author noted that altering the corporate charter is an oft times used antitakeover tool. The initial composition of and methods of changing the board of directors is an example of corporate charter information proscribed in the corporate charter. The author listed supermajority provisions, fair price provisions and dual capitalizations as being additional antitakeover devices that would require changes to the corporate charter.
(Gaughan, 2018) acknowledged that the overwhelming majority of corporate charter amendments receive shareholder approval. Companies with exceptionally poor management team may be an exception to the passage of corporate charter amendments. The author discussed each antitakeover method requiring changes in the corporate charter. Staggering the board of directors was mentioned first. Staggering the board is described as making one third of the board of directors up for election every year. Each board member is up for election every three years.
Interestingly, corporate charters that are amended to stagger the board must receive approval from both the board of directors and shareholders. However, if the method of staggering the board is proscribed in corporate bylaws, only shareholder approval is needed. The idea behind staggered boards as an antitakeover defense is that many on the board may be loyal to current management. Some board members may also be managers within the company. With the election of new board members being spread across three years, this could at least slow down the takeover process. Thus, buying time for the target company to better plan a defense and prolong the battle.
(Min, 2018) also discussed differences in corporate charters and corporate bylaws. The author agreed with (Gaughan, 2018) that state corporate laws require shareholder approval to amend corporate charters. (Min, 2018) explained that only the board of directors has the ability to propose amendments. Managerial opportunism was mentioned as a possible negative of directors having the exclusive ability to propose corporate charter amendments. Managerial opportunism was defined as the board of directors refusing to propose amendments that may benefit shareholders or advance changes that benefit managers.
(Min, 2018) acknowledged that shareholder approval at can least theoretically mitigate managerial opportunism. However, shareholders tend to be diverse and so widely dispersed that it is hard to garner shareholder consensus. (Min, 2018) reported that a recent study actually showed an improvement in shareholder engagement. Increased shareholder engagement has helped prevent management initiated amendments and has increased pressure on directors to propose and support shareholder initiated amendments.
(Choi, 2018) confirmed (Min, 2018) assertion that only the board of directors has the ability to change corporate bylaws without shareholder approval. (Choi, 2018) stated this in regard to fee-shifting amendments to bylaws. The author explained how the Delaware Supreme Court has waffled on this issue. The Delaware Supreme Court at first allowed fee-shifting. However, the Delaware legislature voted to disallow fee-shifting changes to corporate charters and bylaws in 2015.
Corporate charter and/or bylaw amendments remind me of Second Samuel 23:11 – 12. The Philistines had gathered in a Lentil field. Shammah stood his ground and fought for the lentil field and as the Bible states the Lord delivered a great victory. I relate the board of directors and/or shareholders changing corporate charters and/or bylaws to Shammah defending the lentil field. The board and/or shareholders are simply defending their property by doing so. That being said, the board and/or shareholders should do what makes the most sense and benefits the most people involved deal
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