Saturday, February 3, 2024

On Texas

Given all the news about Governor Abbott's pitch to create a business law infrastructure that will compete with Delaware, and Musk's threat to decamp there, it's worth pointing out that this is an amendment that was recently proposed to the Texas Business Organizations Code:

BURDEN OF PROOF IN CERTAIN DERIVATIVE PROCEEDINGS. Notwithstanding any other law, in a derivative proceeding by a shareholder that alleges an act or omission related to the improper consideration of environmental, social, and governance criteria in the performance of the act or omission, the burden of proof is on the corporation to prove the act or omission was in the best interest of the corporation.

In 2022, Texas legislators proposed amending its law to permit shareholders to bring a fiduciary duty claim against the managers of any public company that provided women employees with travel benefits for abortion care (though, to be fair, in that case, the proposal would have applied even to non-Texas organized companies).

Texas Attorney General Ken Paxton has been very vocal about his objections to ESG - he is among those suing to block a Department of Labor rule, among other things - and as Attorney General, he would, as I understand it, have the power to seek involuntary dissolution of Texas entities.

We can also throw in Texas’s refusal to do business with financial institutions it perceives as “boycotting” oil companies, with “boycott” defined both capaciously and idiosyncratically.

I think it would be very difficult for Governor Abbott to assure companies that if they organize in Texas, their business decisions will not be second-guessed on political grounds.

Ann Lipton | Permalink


Lots of proposed legislation never makes it through: I'd be surprised if one couldn't find similar proposed legislation in Delaware (albeit from the other direction). Meanwhile, it's not like Delaware hasn't fostered lawsuits based on politics. It's just that those lawsuits opposed things like Citizens United from the left, rather than Dobbs from the right.

Posted by: A. Rickey | Feb 3, 2024 1:10:26 PM

I'd be curious what evidence you can find on your claims, A. Rickey. Also curious how Delaware encouraged lawsuits challenging the outcome of the federal constitutional holdings in Citizens United, or even how it could have done so?

Posted by: John C Coates | Feb 4, 2024 6:47:55 AM

See my recent post on this blog discussing New York State Common Retirement Fund v. Oracle. The complaint in that case, brought by a pension fund led by a Democrat politician, relied upon a law review article by then-Chief Justice Strine. There's no opinion in the action--unsurprising, given the writing on the wall.

Posted by: A. Rickey | Feb 4, 2024 8:19:26 AM

Anthony, you can't seriously say that a filed case that was never decided somehow demonstrates Delaware's political character, when the AG of Texas has made clear he'd dissolve the charter of any company that sold a Barbie doll wearing men's trousers if he thought it would keep him out of jail for securities fraud.

The state legislature has openly declared war on BlackRock, State Street, and ISS. It's got a long way to go to raise a serious challenge to Delaware.

Posted by: Ann Lipton | Feb 4, 2024 8:23:33 AM

Ann: Perhaps you are right. Time will tell.

Posted by: A. Rickey | Feb 4, 2024 8:38:10 AM

Post a comment