Power to the Franchise of the Fiduciaries?: an Analysis of the Limits on Stockholder Activist Bylaws

Frederick H. Alexander and James D. Honaker 

This article questions the validity of stockholder-proposed bylaws that attempt to limit the managerial power of boards of directors of Delaware corporations. The authors conclude that certain bylaw proposals violate both the letter and spirit of Delaware corporation law because they would allow a faction of stockholders (who do not owe fiduciary duties to advance the interests of their fellow stockholders) to prevent director fiduciaries from managing the corporation for the benefit of all stockholders. To support their conclusion, the authors discuss their concerns with three types of bylaw proposals urged by stockholder activists: bylaws that limit a board’s power to adopt or continue a stockholder rights plan, bylaws that require a board to reimburse a stockholder for expenses incurred in conducting a proxy contest for director elections, and bylaws that require the board to include stockholder nominees on a corporation’s proxy materials.