Second-Generation Shareholder Bylaws: Post-Quickturn Alternatives

Abstract

Practitioners believe shareholder-initiated bylaws that specifically eliminate poison pills will turn out to be illegal in Delaware. The authors assume that consensus is correct and ask: What next? Threat or opportunity, bylaws remain a potent weapon. Shareholder activists may use other types of bylaws to facilitate high-premium hostile takeovers or to pursue a more durable form of collective power, or both. The authors analyze three "secondgeneration" bylaws that (i) are likely to be upheld by Delaware courts, (ii) would shift power from boards to shareholders, but (iii) are not so dramatic as to insure a manager-induced legislative backlash. Boards can expect to see proposals for these or similar bylaws in the future, courts and the Securities and Exchange Commission can expect to see challenges to their legality, and legislatures can expect corporate lobbies to seek legislation to reign in this new form of shareholder voice. Analysis of these bylaws also casts light on the latent tension between shareholder authority and manager power in American corporate law.