Corporate bylaws are the new leading edge of a decades-long struggle between shareholders and managers over the allocation of decision-making authority in public companies. Bylaws are the only method by which shareholders can unilaterally restrict the powers and discretion of the board. Yet the scope of this statutory authority remains notoriously uncertain. Corporate law scholars generally agree that there is a limited domain in which shareholders can restrict managerial authority, but disagree on the appropriate boundary. The Delaware Supreme Court recently confronted this issue for the first time in CA, Inc. v. AFSCME Employees Pension Plan, but that decision is doctrinally problematic (indeed, internally inconsistent) and, in any event, leaves open many questions concerning the full reach of the shareholder bylaw power.
This Article develops a novel theory of the shareholder bylaw power by examining that power’s relationship to the deeper structure of corporate law. Viewed in this context, shareholder voice (of which the bylaw power is one part) should provide an avenue for action in circumstances where shareholders’ other rights, i.e., the ability to exit the firm or sue its fiduciaries, are unavailing. This occurs most prominently where corporate activity implicates significant questions of social policy in addition to intracorporate economic matters. In other words, shareholders should be empowered to act as moral agents of the corporations in which they invest.
This Article also addresses two threshold questions related to this theory: Do corporations need moral agents? And if so, why not rely on managers to play that role?