We examine the extent to which shareholders strategically allow a weak governance structure in response to increasing competition pressures in the product market. We treat acquisitions by rival firms as shocks that increase threats in a competitive product market. We find that firms adopt greater entrenchment provisions when there are greater competition threats. Moreover, firms with high institutional ownership – especially by dedicated investors – and board independence within the compensation committee are particularly aggressive, which is consistent with our theory that aggressive behavior represents a strategic decision by shareholders. Finally, we find positive relationship between the adoption of entrenchment provisions and firm's future performance, but only for the adoption under relatively severe competitive pressures.