Shareholder Voice in Corporate Charter Amendments

Abstract

Prior scholarship has characterized corporate charters as relatively static documents that, if ever amended, tend to serve the interests of managers over those of shareholders. This paper challenges the conventional accounts using newly constructed, original data on corporate charters of the 221 largest, publicly traded U.S. companies. The novel dataset shows that, starting around 2005, there was a substantial increase in charter amendment activity that tends to empower shareholders. This paper argues that a new rule from the U.S. Securities and Exchange Commission (“SEC”) in 2003 and its subsequent interpretation regarding mutual funds’ fiduciary duty in proxy voting have played an important role in this change by empowering proxy advisory firms, such as the Institutional Shareholder Services (“ISS”). The general rise of shareholder influence on charter amendments, however, has not completely shifted control from managers to shareholders. Directors’ exclusive right to dictate the final draft of charter provisions has enabled managers to make compromised implementations which impose limitations on how shareholders can exercise newly granted rights. This paper argues that the current practices of the SEC and proxy advisory firms tend to disregard such compromises and presents suggestions on how to better facilitate a more nuanced debate on charter amendments.