For the first time, an Oklahoma appellate court has ruled a corporation’s bylaws can be implicitly amended by a course of conduct.
At issue in Johnson, et al. v. Brown, et al. was the closely held Oklahoma corporation of Brown, Brown, Wood, and Scholen, Inc. Beginning in 1990, four siblings each owned 25% of the outstanding voting stock and sat on the board of directors. As each original shareholder passed away, one of his or her descendants was selected by the members of each respective family to fill the open board seat, thereby maintaining equal representation and board control among the four families. This practice was not officially formalized in the corporate bylaws, which provided that board members shall be elected by the shareholders at each annual meeting.
While board control among the four families remained equal over time, stock ownership did not. By 2021 and as a result of various transfers, one family had acquired a majority of the outstanding voting stock. At the annual shareholders meeting, this family nominated and elected four of its own members, taking full control of the board and eliminating the directors representing the other three families.
Litigation ensued, and the Court of Civil Appeals had to determine whether election of board members was governed by (1) a vote of the shareholders as outlined in the bylaws or (2) an appointment by each original family as had occurred by custom. Looking to analogous Delaware state law and analyzing general contract principles, the court concluded a corporation’s bylaws can be amended by a course of conduct, particularly when there is unanimous shareholder consent to a course of action clearly inconsistent with the bylaws occurring over a sufficient period of time. The Oklahoma Supreme Court has since approved Johnson for publication, which indicates its precedential value.
Accordingly, even where a corporate practice is not authorized by (or even inconsistent with) the relevant bylaws, that practice could eventually result in an enforceable amendment. In light of Johnson, an entity could consider reviewing its bylaws and perhaps strengthening the language in any provision that governs or limits how an amendment can occur.