Charter Amendments Research Articles

Policy Note: Water Affordability and Accessibility in Baltimore, Maryland

Water system revenue losses, inefficiency, mismanagement, lack of productivity, and federal mandates are rapidly escalating the cost of water and wastewater for Baltimore consumers. Baltimore’s water and wastewater systems are municipally owned and poorly managed by Baltimore City. Due to a lack of maintenance, these systems are plagued by an immense number of leaks, main breaks, and sewage backups. In addition, the billing system has a long history of errors. The overall deterioration of the systems, inadequate capital management, and operational problems are symptomatic of the fact that the Baltimore City Department of Public Works lacks proper accounts, including a balance sheet. Despite these glaring flaws, the systems have been politicized and are now protected by an amendment to the Baltimore City Charter that prohibits the assistance of private enterprise and markets in addressing Baltimore’s endemic water and wastewater problems by tapping the competency and skills available in the private marketplace. In order to reverse the politicization of Baltimore’s water system, which will only make operation and capital mismanagement problems worse as well as increase costs for the citizens of Baltimore, the charter amendment must be eliminated, allowing for the private provision of infrastructure and its maintenance. We recommend that this private provision is based on the centuries-old tried and tested French model.

Institutionalizing Political Influence in Business: Managerial Resistance and Insider Control

The United States (U.S.) government and judiciary have long been trying to understand the state-backed or state-influenced actions behind Chinese enterprises that threaten U.S. businesses and economy. This Article takes advantage of a recent “party-building” (dangjian) reform in Chinese state-owned enterprises (SOEs) to dissect the power struggle between the Chinese Communist Party (CCP) and SOEs and shed light on the opaque terrain of political influence in business in China. By presenting the four-year party-building charter-amendment data from 2015 to 2018, this Article documents the voting responses of external shareholders and finds evidence of insider control in SOEs and SOE managerial resistance against political influence. Foreign and minority shareholders expressed their concerns about enhancing the party’s influence by voting against the amendments. However, their power is limited given the state’s dominating shareholding in SOEs. This Article also finds resistance from SOE managers. High-level, nationally important central SOEs are more likely to resist party order. Even after multiple amendment requests from the government, resisting SOEs still adopted fewer party-building provisions than other adopting SOEs. Resisting SOEs are also less profitable and less internationally competitive, suggesting that they might suffer from insider-control problems. This Article thus argues that the writing-in of party-building provisions is not just putting something already in practice into written words, as conventionally believed. The charter amendment illustrated the power struggle between the CCP and SOE managers and was, in fact, a political renegotiation in which the CCP regained its control over SOEs by institutionalizing party organizations in business. However, the charter amendment does not warrant power shifting; it is just the first step. It remains to be seen whether institutionalizing party influence in business makes real changes in business decision-making.

Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance

We examine responses by Chinese firms to a “party-building” policy launched by the Chinese Communist Party (CCP) in 2015 to reform China’s state-owned enterprises (SOEs). The policy requires SOEs to follow a model template of charter amendments to formalize and elevate the role of the CCP in their corporate governance. In the period 2015-18, about ten percent of publicly traded SOEs failed to follow the mandatory policy, while nearly six percent of privately owned enterprises (POEs) complied even though they were not subject to the policy. We find wide variation in the provisions adopted within and across firm ownership types, with SOE adoptions apparently affected by their ownership structures and exposure to capital market forces, and POE adoptions associated with political connections. Our findings highlight the complex contours of political conformity in Chinese firms and raise questions about the trajectory of Chinese corporate governance reform and foreign investment activity.

Ownership and political control: Evidence from charter amendments

The latest debate about Chinese state owned enterprises (SOEs) revolves around whether there is a positive association between ownership and control, or whether all firms in China are similarly captured by the government. The recent Chinese Communist Party (Party)’s policy mandating all SOEs to amend their corporate charters to enhance the Party’s control has provided us with a rare opportunity to empirically investigate this question. We find that the state’s equity interest is positively correlated with an SOE’s responsiveness to the Party’s mandate, while the concentration level of nonstate owners and overseas listing are inversely related. These results show that ownership is important for the Party to exercise control over SOEs, but the Party also faces external constraints from other nonstate owners and overseas regulators and investors.

“Equitable Geographic Distribution”: What Does It Mean for the UN Security Council?

The antiquated and undemocratic rules operating in the United Nations Security Council do not reflect and serve today’s integrated global society, nor does the institution adequately represent the diversity of member states. Despite General Assembly discussions that have lasted a quarter-century, no result has materialized on the expansion issue. The author concludes that regional rivalries, the veto, the onerous Charter amendment process, and the failure to devise a truly representative model are responsible for the lack of progress. A model with eighteen rotating seats, based on population, area, and regional position, and four elected seats deserves consideration as an alternative. Key Words: metageography, political geography, population and area ratings, United Nations Security Council.

A Study on the Needs and Direction for the Amendment of the Police Charter

A Study on the Needs and Direction for the Amendment of the Police Charter

Communication life line? ABC emergency broadcasting in rural/regional Australia

ABSTRACTAs an emergency broadcast provider, the Australian Broadcasting Corporation (ABC) has a perceived duty to ensure communities are informed during natural disasters through its radio network. This obligation is tested by issues of diversity and distance across rural and regional Australia as well as the structural and resourcing changes taking place within the ABC. This article examines public submissions to a Parliamentary Bill to amend the ABC’s Charter with greater provisions for rural/regional media coverage. The analysis reveals two key concerns regarding emergency radio broadcasting: access inequities including issues with digital replacement technologies; and how the frequency, timeliness, and accuracy of emergency news suffer from decreasing ‘localness’. Upon reviewing the submissions, we argue that the ABC’s Charter and Memorandums of Understanding with state/territory emergency service agencies are currently insufficient in meeting the media access and content needs of rural and regional communities during disasters. We conclude that the proposed Charter amendments would help the ABC to better account for how local contexts shape the effectiveness of its emergency broadcasting.

Determinants and consequences of shareholder proposals: The cases of board election, charter amendment, and profit disposal

By investigating shareholder proposals in Japan during 2004–2013, this study aims to address the question whether exercising legally powerful shareholder rights has an impact on the management. Compared with their counterparts in the United States, Japanese shareholders are entitled to more statutory rights, including binding shareholder resolutions on issues relating to board election, charter amendment, and profit disposal. The empirical tests reveal several important results. First, different types of shareholder proposals are triggered by varying firm characteristics. Second, resolutions on the board election and charter amendments relating to corporate governance receive higher votes than those for profit disposal. Voting outcome is also positively associated with foreign shareholding, duration of the general meeting, and the firm's history of receiving proposals. Moreover, resolutions initiated by large shareholders have positive impacts on the target firms, which reported positive announcement-associated abnormal returns. Improvements in the operating performance are observed for firms passing board election resolutions and firms receiving charter amendment proposals from large shareholders. The management also increased share buyback and dividend payout in response to demands by large shareholders, although there was no significant change in the post-resolution operating performance. Overall, the results indicate that statutorily powerful shareholder rights, when exercised by large shareholders, can have a positive impact.

Is the U.S. Government a Corporation? The Corporate Origins of Modern Constitutionalism

The U.S. Constitution is best understood not as a “social contract,” but as a popularly issued corporate charter. The earliest American colonies were literal corporations of the Crown and, like all corporations, were ruled by limited governments established by their charters. From this, Americans derived their understanding of what a constitution is—the written charter of a sovereign that ordains and limits a government. The key Federalist innovation was to substitute the People for the King as the chartering sovereign. This effectively transferred the “governance technology” of the corporation to the civil government—including the practice of delegating authority via a written charter, charter amendment, and judicial review. Federalists used these corporate practices to frame a government that united seeming irreconcilables—a government energetic yet limited, republican yet mixed, popular yet antipopulist—yielding a corporate solution to the problem of arbitrary rule. Leading founders considered this new government a literal chartered corporation of the People.

Who Controls Corporate Charters? Shareholder Activism and Charter Amendments

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.

The Role of Preferred Shareholders in Fundamental Transactions: Preliminary Thoughts

In public corporations, the claim of the preferred shareholders is typically limited to a fixed dividend and a fixed amount on liquidation, and this claim shall be satisfied before the common shareholders can receive anything. Their rights to a prior, but limited, dividend resemble the rights of creditors, who also must rely on their contractual rights and do not vote in the general shareholders’ meeting. However, according to Italian corporate law, the preferred shareholders have a veto power against fundamental transactions such as, for example, certain mergers, demergers, charter amendments that jeopardize their preferred rights. Therefore, notwithstanding their limited percentage of share capital, preferred shareholders i on the one hand have the power to prevent a corporation from transactions that may increase the common shareholders’ value, and ii on the other hand, are not subject to any redemption right neither by the common shareholders nor by the corporation itself. In light of the above, this article argues that granting a redemption right ex lege to the common shareholders in case the preferred shareholders vote against certain fundamental transactions may be a tool for strengthening the best interest of the corporation because it allows at the same time aa directors and common shareholders representing the latter the majority of the share capital to achieve the corporate benefits arising from such fundamental transactions, and bb the dissenting preferred shareholders to withdraw from the corporation at a fair market value.

The Private Ordering Solution to Multiforum Shareholder Litigation

This paper empirically analyzes a private ordering solution to multiforum shareholder litigation: exclusive forum provisions in corporate charters and bylaws. These provisions, whose use has become quite widespread, require that all corporate law-related disputes be brought in a single forum, typically a court in the statutory domicile. Using hand-collected data on the 746 U.S. public corporations that have adopted the provision, we examine what drives the growth in these provisions and whether, as some critics contend, their adoption reflects managerial opportunism. We separately analyze companies that adopt the provision at the IPO stage (which usually occurs through a charter amendment) and those that adopt “midstream” or after IPO stage (which usually occurs through a bylaw amendment). We find that nearly all new Delaware corporations adopt the provision at the IPO stage, and further that the transition from zero to near-universal IPO adoption is driven by law firms. The characteristics of individual companies appear to play little or no role in adoption decisions. Instead, the pattern of adoption follows what can be described as a light switch model, in which law firms suddenly switch from never adopting to always adopting the provision in the IPOs they advise. This pattern contrasts with the decision to include takeover defenses in IPO charters, and suggests that lawyers have come to perceive that exclusive forum provisions are universally value-increasing. For midstream adoptions, we compare corporate governance features of midstream bylaw adopters to a matched sample of non-adopters in order to test the hypothesis that midstream bylaw adoption reflects managerial opportunism. If the hypothesis were correct, then we would expect to find that midstream adopters exhibit poor corporate governance compared to nonadopters (using the metrics of good governance practices as identified by critics of the provisions). We find, however, that there are either no significant differences in governance or that it is actually adopters that have higher quality governance features. We also find no significant differences in governance and ownership structures between firms whose boards adopt the provisions as bylaws and those who obtain shareholder approval. The absence of significant differences across firms using disparate adoption procedures suggests that the method of adopting an exclusive forum provision – whether with or without shareholder approval – should not be a matter of import for investors.

What Should We Do About Multi-Jurisdictional Litigation in M&A Deals?

Many M&A transactions attract shareholder litigation challenging the fairness of the economic terms of the deal for the target shareholders. Since the end of the financial crisis, however, there has been a documented increase in the number of jurisdictions in which each individual transaction is attacked. Why has this upsurge in multi-jurisdictional litigation occurred? How significant are its real costs and benefits? And what should we do about it, if anything? This Article first summarizes what we know about these questions and then offers its own viewpoint on how best to respond to multi-jurisdictional litigation. On the one side, the defense bar and their academic supporters want to eliminate shareholders’ choice about where to file litigation either by mandating that only the state of incorporation is a proper venue or, alternatively, by vesting the choice of venue with the target company’s board of directors. A corollary aspect of these proposals rests on whether the proponents believe that a bylaw passed solely by the board of directors is sufficient to implement such a change, or whether a shareholder-approved charter amendment is needed. However, on the other side, there are judges, academics, and investors who believe the current system of judicial comity is appropriate either as it is now or with some tweaks. These advocates see value in the current system of judicial federalism and comity, while at the same time differing over whether a thumb needs to be put on the scale in favor of the state of incorporation or greater coordination among judges in different courts. This Article argues that comity is the best solution for the present, although the final resolution of these issues awaits the development of more complete data on the costs and benefits of the current system.

United Nations Reform Through Practice: Report of the International Law Association Study Group on United Nations Reform

This is a report on the reform of the United Nations produced by the International Law Association Study Group on the topic. The focus of the study eschewed the well-covered ‘big ticket’ areas requiring Charter amendment, such as alterations to the membership of the Security Council, to provide a critical evaluation of other areas where most reforms have actually happened: through the practice of the organization. The report is edited by Ralph Wilde, Rapporteur of the Study Group, and contains contributions from Jan Klabbers, Nico Schrijver, Hilary Charlesworth, BS Chimni, Ivan Shearer, Ove Bring, Vera Gowlland Debbas, Nico Krisch and Sienho Yee. The contributors address the law applicable to UN reform, the Peacebuilding Commission, the accountability of the Security Council, international environmental governance, the role ECOSOC in relation to international economic institutions, the International Court of Justice, the powers and procedure of the Security Council, the use of force, and reporting before the UN human rights treaty bodies.

Are Antitakeover Charter Amendments Good News Or Bad News For Managers And Shareholders?

<span>In recent years many firms adopted antitakeover amendments to their corporate charters. The amendments have come under criticism from those who believe that they are harmful, and little sentiment in favor of the amendments seems to exist. This article discusses issues related to antitakeover amendments, and presents an overview of available empirical evidence about the amendments. The evidence demonstrates that the amendments are not always harmful and indeed suggests that the amendments, at least in some cases, are beneficial.</span>

Managerial Efficiency And Share Ownership: The Market Reaction To Takeover Defenses

We examine the stock price reaction of antitakeover charter amendment takeover defenses (TDs) based on whether or not the firms in our sample had managers and directors with high share ownership, and whether the firms could be regarded as efficient. We find that the market reacts differently to the adoption of TDs based on these two criteria.

Shareholder Wealth Effects Of Poison Pills In The Presence Of Anti-Takeover Amendments

<span>In the 1980s managers were innovating in implementing arsenals of devices to prevent possible takeovers of their firms. These anti-takeover devices were usually amendments to the corporate charter or poison pills. Prior studies have examined market reactions to either amendment devices or poison pills. This study provides an extension to those studies by examining marketing reactions to poison pills as the first anti-takeover devices compared with pill adoptions as an addition to an already existing arsenal of charger amendment devices. Results indicate that market reactions differ between these two types of events. Stockholder wealth effects differ also according to the type of charter amendment in place at the time of pill adoption.</span>

Implications of CEO Structural And Ownership Powers, Board Ownership And Composition On The Markets Reaction To Antitakeover Charter Amendments

<span>This study analyzes how the CEOs structural and ownership powers, along with the board of directors ownership and composition influence the markets reaction to antitakeover charter amendments. We find conditional support for both the agency and stewardship theories, each being relevant depending on governance mechanisms. The market evaluates the potential effect of the amendments on the balance of power between the CEO and the board of directors, and whether there are any countervailing forces to assure shareholders rights are being protected.</span>

Las Problemáticas Modificaciones Adicionales a la Transformación de Sociedades Mercantiles (The Problematic Charter Amendments Additional to the Transformation of Corporations)

Spanish Companies regulation (in particular, Act 3/2009 on the structural modifications of corporations) allows for a simplified procedure of charter amendment in the case of transformation of corporations. In some cases, the simplification might imply a reduction in shareholders' and creditors' rights. This article critically appraises the Spanish rules and proposes a functional interpretation that preserves shareholders' and creditors' legitimate rights when corporations decide to transform.

Judicial Review of Defensive Tactics in Proxy Contests: When is Using a Rights Plan Right

This article focuses on proxy contests for corporate control. In a proxy contest for corporate control, shareholders try to wrest control of a target corporation from the existing board of directors by winning a corporate election of directors. Issue contests, by comparison, are proxy contests over fundamental corporate changes, such as merger proposal or charter amendments, or proxy solicitations relating to shareholder proposals under Rule 14a-8. Lucian A. Bebchuk and Marcel Kahan, Proxy Contests, A Framework For Analyzing Legal Policy Towards Proxy Contests, 78 Cal. L. Rev. 1071, 1074-1075 (1990). This Article will use the term proxy contests to mean proxy contests for corporate control. It will use the term joint offer to refer to a joint tender offer and proxy contest.