Looker v. Maynard

Background

This case asks whether a state legislature that has a constitutional reservation of power to alter, amend, or repeal future corporate charters can lawfully adopt a statute allowing each stockholder to cumulate his votes for one or more director candidates. The statute’s title says its purpose is “to secure the minority of stockholders ... the power of electing a representative membership in boards of directors.” The Court framed the dispute against Dartmouth College v. Woodward, which held that a corporate charter is a contract and state changes can violate contract protections unless power to alter is reserved.

Reasoning

The central question was whether the reserved legislative power reaches the change at issue — permitting cumulative voting. The Court explained that where a State has expressly reserved the general power to alter or repeal charters, the legislature may make future changes that do not defeat or substantially impair the object of the grant or vested rights. The opinion relied on earlier decisions showing similar legislative changes were valid, including adjustments of shareholder liability and the number or apportionment of directors, and concluded the reservation authorizes the legislature to allow cumulative voting. The Court therefore affirmed the lower ruling.

Real world impact

The ruling upholds a state’s ability to change corporate voting rules when its constitution or statute has expressly reserved that power, making it easier for minority shareholders to pool votes to elect directors in companies organized under general laws. Corporations, their managers, and investors in states with such reservations should expect that legislatures can alter future governance rules, provided those changes do not destroy core rights granted by the charter. The decision affirms the specific statute at issue and leaves in place the legislative route for similar reforms.