actions taken by thesefirms. This protectioncan take the
form of antitakeover amendments to thecorporate charter,
elaboratecrossholdingstructures,andthecreationofshares
with different voting rights. In some cases, the incumbent
managersmayownlargeenoughstakesinthefirmtostifle
any challenge to their leadership.
Corporate Charter Amendments
Inresponsetoawaveofhostiletakeoversinthe1980s,many
firms changed their corporate charters to make takeovers
moredifficult.Manyreasonswereofferedforthesechanges.
First,theywouldreleasemanagersfromthetime-consuming
tasksofhavingtodealwithhostiletakeoversandenablethem
tospendtheirtimemakingproductivedecisions.Second,they
wouldgivemanagersadditionaltoolstoextractahigherprice
from hostile bidders in a takeover by increasing their
bargaining power. Third, they would enable managers to
focus on maximizing long-term value as opposed to the
short-term valuemaximization supposedlyimplicit in most
takeovers.The managersof thesefirmsoffered arange of
antitakeover amendments to this end. Among them were
staggered board elections, whereby only a portion of the
boardcouldbereplacedeachyear,makingitmoredifficult
for a shareholder to gain control; supermajority clauses
requiringmorethanmajorityapprovalforamerger(typically
70 to 80 percent); and the barring of two-tier offers.
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Intheory,theseantitakeover amendmentsshouldaffect the
stock price negatively, because they make takeovers less
likely and entrench incumbent management. By passing
antitakeover amendments,firms reducetheprobabilityofa