Towards a Moral Agency Theory of the Shareholder Bylaw Power

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 authority remains notoriously uncertain. The Delaware Supreme Court recently confronted this issue for the first time in CA Inc. v. AFSCME, but that decision is doctrinally problematic (indeed, internally inconsistent) and, in any event, leaves open many questions concerning the boundary of the bylaw power.This article develops a theory of the shareholder bylaw power by locating it within 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 core rights, i.e., the ability to exit the firm or sue its fiduciaries, are unavailing. This occurs most prominently in the context of corporate activity that implicates significant questions of social policy in addition to intra-corporate 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 the theory set forth herein: do corporations need moral agents? And if so, why not rely on managers to play that role?