On our podcast, Mike Levin and I previously discussed Exxon’s new retail shareholder voting program.  In sum, Exxon got SEC permission to allow its retail shareholders to adopt standing voting instructions to automatically cast their proxy votes in accordance with Exxon’s management.

I’ve heard a lot of shareholder-rights advocates speak favorably of the program, but I disagree.  I’m all for making it easier for retail shareholders to vote – including allowing them to adopt standing voting instructions (Jill Fisch had a whole thing on this) – but Exxon’s program only allows retail to vote for Exxon’s board.  Exxon is almost certainly expecting that, just as retail tend not to vote much at all, those who opt in to the program will likely never bother to revisit their instructions, leaving Exxon with a banked set of votes to oppose any activist interventions (including, of course, what I call “little a” activism, i.e., shareholder proposals).  The way the program is currently constructed, it’s a board entrenchment device.

Which is why I was happy to see that the New York City Comptroller’s Office, on behalf of the New York City Police Pension Fund, has submitted a shareholder proposal for Exxon to open up the program to include options to vote against management. 

There are plenty of ways this could go – standing instructions in favor of climate proposals, or to vote as recommended by independent entities, like themed proxy advisor recommendations, things like that.  Exxon, shockingly, recommends shareholders vote against the proposal, because:

The proposal asks ExxonMobil to implement additional voting options beyond those approved in our SEC no-action letter and which we believe violate proxy rules. For example, the proposal specifically suggests an “against management” option that would be inconsistent with state law and the Board’s fiduciary duties, making the proposal unworkable and illegal. By issuing a no-action letter, the SEC acknowledged ExxonMobil’s Voluntary Retail Voting Program respects the rights of shareholders to make their own decisions. It was also clear that our program, unlike passthrough voting by investors, represents a direct solicitation by ExxonMobil. The proposal ignores all this and wants ExxonMobil to make solicitations directly against the Board’s recommendations…..

The proposal ignores the fact that retail shareholders enthusiastically embraced this program, as evidenced by their participation. (NB: an overwhelming 3% of all shares – which I gather to be about 11% of the retail base – have opted in. I have no insight into the level of enthusiasm these shareholders expressed when doing so) The guidance provided in the SEC no-action letter is applicable to all parties, and the New York City Comptroller’s Office, or any other party, is free to implement its own retail voting program….

(Ad hominem attacks on the New York City Comptroller’s Office omitted).

So, I’m gonna take the last part first. What exactly does it mean, the Comptroller’s Office can implement a retail voting program?  For … shareholders of the Comptroller’s Office?  Shareholders of companies in whose stock the Comptroller’s Office holds shares?  What exactly does Exxon have in mind here?

As for illegality, I think the point Exxon is making is that, since the Board necessarily recommends that shareholders vote for things the Board thinks are good, if the Board recommends shareholders vote against those things, the Board is violating its fiduciary duties.  Fine.  But Exxon also says that its program merely effectuates retail preferences – which suggests it has nothing to do with what the Board recommends at all; it’s only about enabling retail to express what they would prefer.  So fiduciary obligations should have nothing to do with anything.

The way that Exxon gets to the idea that it’s making “recommendations” – which contradicts its own claim that the program merely effectuates retail preferences – is by defining its program as including a “proxy solicitation.”  But proxy solicitations don’t have to include recommendations – they include any request that a shareholder allow Exxon’s representative to vote shares (in any manner) on his or her behalf:

(1) The terms “solicit” and “solicitation” include:

(i) Any request for a proxy whether or not accompanied by or included in a form of proxy:

(ii) Any request to execute or not to execute, or to revoke, a proxy; or

(iii) The furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy,

In other words, just by giving shareholders a proxy card, and asking them to vote – in any way – Exxon is engaged in proxy solicitation.  And simply giving shareholders options as to how to vote is not a recommendation, and – to a more limited extent – is currently required right now, when Exxon sends shareholders a proxy card that includes “no” options.  So it’s hard to see where the fiduciary violation comes in merely by giving retail shareholders a greater ability to express their own preferences; indeed, if Exxon were judged by Delaware standards (it’s a New Jersey company, for now), it might be a violation of fiduciary duty to impede shareholders’ ability to vote against management.

That said, currently, the Comptroller’s Office is asking Exxon’s shareholders to vote to expand voting options for retail, and the Exxon shareholder base is about 66% institutional, including around 10% at Vanguard, 7% at BlackRock, etc.  And I don’t know that institutional holders, in general, have an overriding interest in seeing retail voices enhanced.  Not to mention, of course, the current political environment, where the SEC has suggested that institutional index funds might actually mislead their own investors about their investment strategy if they dare to vote against management.

Point being it’s hard to be sure that any institutional actors – mutual funds, proxy advisors, anyone – are effectuating their actual preferences (whatever that means) when the threat of federal retaliation hangs over them.

Anyhoo, I guess this is what Chair Atkins has in mind when he says the SEC is “focused on ensuring that States, and not the SEC, regulate matters of corporate governance.”

And another thing. New Shareholder Primacy podcast is up!  Me and Mike Levin talk about the “zero slate” proxy solicitation at BJ’s Wholesale Club (I learned that phrase from The Corporate Counsel), and the activist intervention at Snap.  Here at Apple; here at Spotify; and here at YouTube.

From this Law360 article, I learned that Clearway Energy proposes to simplify a complex capital structure. It has two classes of stock that trade on the NYSE: A and C. The A’s have 1 vote per share; the C’s have 1/100th of a vote per share.

It also has B and D shares, held exclusively by CEG, who as a result controls 55% of the company’s voting power.

Clearview proposes a charter amendment to convert the A shares into C shares and, recognizing that this would cause CEG’s own voting power to increase, proposes to fix that problem by putting a bunch of CEG’s shares into a Voting Trust in a mirror voting arrangement that ensures CEG’s voting power does not rise above 55% as a result of the reclassification.

Here is the proxy explaining the proposed changes. As required under Delaware law, for the amendment to take effect, the Class A shareholders must vote in favor.

Anyway, the Law360 article is about a lawsuit filed by the New England Teamsters Pension Fund challenging the scheme as a conflict transaction, because the scheme will allow CEG to sell down its stake while maintaining its voting power. That’s because shares move in and out of the voting trust, to ensure that CEG always controls 55%.

This is not the first time a controller has altered a corporation’s capital structure to allow sales of the controller’s stock while maintaining the controller’s voting power – but here’s the thing.

NYSE Listed Company Manual 313 states:

Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time phased voting plans, the adoption of capped voting rights plans, the issuance of super voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

This is a really important provision! The NASDAQ’s version of it is the reason, for example, that Tesla couldn’t just give Musk 25% voting power – which the board said it wanted to do – the only way to confer those votes on him was to give him the associated stock.

So I was tearing my hair, trying to figure out how Clearway Energy could possibly propose to reduce the voting power of the A shareholders, specifically.

And then I found this 2010 NYSE interpretation of its rules, which was apparently the template for Clearway’s proposal:

A Company has a grandfathered triple-class voting structure with Class A, Class B and Common Shares outstanding. The Common Shares and Class B Shares are both listed on the Exchange and have one and 0.1 votes per share, respectively. The Class A Shares have three votes per share and are all held by the controlling shareholder (“Controlling Shareholder”). The Controlling Shareholder also owns Common Shares and controls 76% of the voting power of the outstanding capital stock. None of the classes are by their terms convertible into any of the other classes. There are significantly more Class B Shares outstanding than Common Shares. Consequently, the trading market for the Class B Shares is significantly more liquid and they trade at a higher price than the Common Shares. Holders of the Common Shares have expressed an interest in exchanging their Common Shares for the more liquid Class B Shares. The Company proposes to make an exchange offer (the “Exchange Offer”) in which all
Common Shares would be exchangeable for Class B shares at the option of their holders on a
one-for-one basis.

The Controlling Shareholder has agreed that the percentage of the total voting power of the
Company’s capital stock that he controls following the completion of the Exchange Offer will be
limited to the percentage he controlled immediately prior to its completion. This limitation will be accomplished by a combination of (i) participation in the Exchange Offer by the Controlling
Shareholder (i.e., reducing his voting power by exchanging Common Shares into Class B
Shares) and (ii) an exchange of Class A Common Shares by the Controlling Shareholder for
either Common Shares or Class B Shares with a corresponding reduction in voting power. The
Company understands that consummation of the Exchange Offer may lead to the Common
Shares falling below the Exchange’s continued listing standards for distribution and shares
outstanding and lead to that class being delisted.

313.00 Issue: Would the Exchange Offer of the lower-vote Class B Shares for Common Shares
cause a disparate reduction in voting prohibited by Para. 313?

Determination: The Exchange Offer is permissible under Para. 313….

The Exchange Offer provides for the exchange of Common Shares with one vote for Class B Shares that have 0.1 votes per share, and thus would appear inconsistent with the quoted language of Para. 313….However, in the proposal under discussion here, the Controlling Shareholder has committed to limit his voting power to the percentage of the total voting power he held before the Exchange Offer (76%), by exchanging Class A Shares for Common Shares or Class B Shares to the extent necessary to achieve that result. Therefore, the Exchange Offer does not have the intention or effect of disenfranchising the holders of the Common Shares or the Class B Shares by further entrenching the control of the Controlling Shareholder. While participants in the Exchange Offer other than the Controlling Shareholder will reduce their individual voting power, the actual effect of doing so is de minimis, as the Controlling Shareholder retains a significant majority …

I think Clearway may have modeled its proposal on this guidance, right down to the rationale for the conversion:

Historically, the price of our Class A common stock on the NYSE has generally been below the price of our Class C common stock, despite the greater voting powers of our Class A common stock and the otherwise identical rights of the two classes.

But CEG is maintaining its voting power not by selling a proportionate share of its own stock, as the guidance suggests, but by creating a voting trust that will precommit the votes of its existing stake to ensure its real voting power stays at 55%.

Except that means – and once again, this is what the plaintiff is objecting to in Delaware – due to the structure of the Trust, CEG can sell down its equity stake and maintain its voting power. That wasn’t true before the proposed conversion, and it’s not a feature of the NYSE guidance, either.

My concern is that, if Clearway is permitted to do this, then you can imagine future manipulations. Controllers will be incentivized to create new low vote stock (just as Google did), and then later propose the exact same transaction. As a result, the controller gets a new benefit: maintaining control while selling its stake.

Anyhoo, I’ll add the caveat that this is how I read things but I’m not a listing rules maven so if there’s more that I’m missing, like further NYSE guidance, drop an email and I’ll update this post.

And another thing. New Shareholder Primacy podcast! This week, me and Mike Levin talk about all the recent guidance and proposals coming out of the SEC. Note: We recorded before the Chubb opinion issued. Here at Spotify; here at Apple; and here at Youtube.

Ben previously blogged about a Weinberg Center survey regarding law prof views on shareholder proposals. The results are now available on SSRN, here.

Additionally, the Weinberg Center will be hosting a panel discussion on shareholder proposals and ESG on April 28; deets here.

I am intrigued by this opinion in Walker v. Chidambaran, 2026 WL 787964 (D. Md. March 20, 2026), dismissing a securities fraud complaint against various former officers and directors of an artificial intelligence company called iLearnEngines (“iLE”).

iLE went public in a SPAC merger in 2024, and its SEC filings stated that a significant portion of its revenues and sales came from an unnamed “Technology Partner.”  The Technology Partner and iLE had a complicated web of relationships, buying and selling services from each other, the revenues of which may – or may not – have been netted out against each other (the registration statement appears to have been inconsistent on this point).  Prior to the SPAC merger, the SEC inquired whether the Technology Partner was a related party, and iLE answered no.

(Guess where this is going).

Anyhoo, things started to go south when short seller Hindenburg issued a report on August 29, 2024, identifying the technology partner as Experion Technologies. iLE’s founder and CEO was listed as Experion’s American contact in 2020, and his personal residence was the official residence of Experion Americas in 2022.  Experion India and Experion Middle East and Africa were 35%  and 45% owned, respectively, by the brother of an iLE officer.  Two iLE officers were directors and shareholders if Experion’s India affiliate in 2023, one of whom occupied various roles at various times of Experion Middle East and Africa; and Experion Middle East and Africa was partially owned by yet another iLE officer.  The Hindenburg report claimed that iLE’s revenues were “fake” as a result of round-tripping with Experion.

iLE denied the allegations but also formed a special committee to investigate; in the meantime, its founder insisted that its financial statements could be relied upon because they had received clean audit opinions (from Marcum, which became infamous for shoddy SPAC audits after it was sanctioned in 2023).

Soon thereafter, Marcum withdrew its audit opinions, iLE announced that none of its financial statements since 2020 could be relied upon, almost all of its top management were placed on administrative leave, and the whole thing ended in delisting and bankruptcy.  The bankruptcy filing identified two Experion entities as “insiders” and related parties.

Plaintiffs filed a 10(b) lawsuit, as one does in this situation, generally alleging that iLE’s financials were misleading for failure to properly account for round-tripping arrangements with Experion, and for misleadingly failing to identify Experion as a related party.

And yet, the district court for the District of Maryland rejected the allegations that there had been anything misleading in iLE’s SEC filings at all.

In order to qualify as a related party, the court explained, plaintiffs had to show the entities had overlapping management or members of their immediate families, or that one entity had enough control over the other to prevent it from pursuing its separate interests, and despite all the tangled overlapping relationships between Experion and iLE, the plaintiffs had failed to specifically identify how one was able to influence the other.  After all, reasoned the court, the founder of iLE might once have housed Experion America at his own personal residence, but that was two whole years before the SPAC merger.  And the bankruptcy code’s concept of “related party” is totally different than the GAAP concept.  To top it all off, “the Philip brothers’ relationship also does not render Experion a related party because Plaintiffs do not explain why the sibling relationship is sufficient to satisfy the significant influence or control test.”

Meanwhile, the fact that iLE collapsed into bankruptcy with no reliable financial statements hardly demonstrated that its Experion revenues were falsely accounted for.  After all, the registration statement said in one place that it was not netting amounts due to Experion against amounts due from Experion, and in another place said it was netting them, and therefore falsity could not be inferred because plaintiffs failed to identify which it was. 

I mean … I really don’t know what else exactly to say about this except that it strikes me as an especially egregious example of that thing where courts read the PSLRA to require a level of particularity in pleading that leaves literally no question unanswered, an impossibly high bar.

Anyway, there are frivolous securities cases, absolutely, I see them all the time, it’s a problem, but this kind of case is why, in general, I’m not terribly sympathetic when defense attorneys insist that we need to tighten the screws still further, that every decision in plaintiffs’ favor requires another trip to the Supreme Court, because, for sure, cases make it through the gauntlet that shouldn’t – but it cuts at least as much, if not more, the other way, and that’s a problem too.

No other thing.  No new Shareholder Primacy podcast this week, but back soon!

Save the date! The annual Corporate & Securities Litigation Workshop will take place on October 22 and 23 in Chicago, hosted by the University of Illinois College of Law.

A call for papers will be coming soon, but please mark your calendars now!

This annual workshop brings together scholars who address any aspect of corporate and securities litigation or enforcement, including securities class actions, fiduciary duty litigation, and SEC enforcement actions. We welcome scholars working in a variety of methodologies, as well as both completed papers and works-in-progress. 

Thanks to Verity Winship for sending this my way to get out. I’ll also post the call for papers when it comes out.

Picking back up after February’s post, I’ve got an updated list looking at movement between states so far this year in preparation for a panel at KPMG’s Board Leadership Conference this week. This list has grown with another five companies announcing attempts to shift their incorporation jurisdiction since the last update. Some thoughts on the announced moves after the list as well, infographics, and quick note about my new Senior Of Counsel role.

This is the current iteration of the spreadsheet. It’s a work in progress but has links to filings and more information that we’re tracking.

Infographics

We’ve got some updated infographics as well.

Origin & Destination States

Market Capitalization By State

Having Exxon in the mix dramatically shifts the market capitalization picture, but this is the current breakdown.

Vote Results

Many thanks again to research assistants Ethan Viator and Hunter Hawkins for giving us charts showing voting results so far at different companies.

Part of the reason for doing these infographics around vote results is to make it easier to see if there are significant voting differences depending on the destination jurisdiction. Both LQR House and EQV Ventures had Delaware as the target jurisdiction and attracted little opposition. I think that reflects a lot of institutional investor comfort with Delaware as a default still.

LQR House’s New Franchise Tax Fees

LQR House winning the vote to shift to Delaware doesn’t mean that it’s an optimal business decision. This is how it described the possible fees it might incur in Delaware upon approval of the move:

Delaware imposes annual franchise tax fees on all corporations incorporated in Delaware. The annual fee ranges from a nominal fee to a maximum of $180,000, based on an equation of the number of shares authorized and outstanding and the net assets of the corporation. Based on our current capital structure and anticipated number of outstanding shares following the effect of one or more Reverse Stock Splits, our annual Delaware franchise tax could be significant, and may be substantially higher than our current Nevada fees.

Golly, this sits in tension with the Delaware’s own guidance that says fees go up to $200,000 for companies that do not qualify as Large Corporate Filers. For them it caps out at $250,000. LQR House’s shiny new Delaware charter now authorizes it to issue “an aggregate of 2,000,000,000 shares of capital stock, which shall consist of: (i) 1,500,000,000 shares of common stock, $0.0001 par value per share (‘Common Stock’); and (ii) 500,000,000 blank check preferred stock $0.0001 par value per share (‘Blank Check Preferred Stock’).” I’m not a Delaware lawyer, but my rough calculation is that under either method, LQR House will now pay $200,000 annually to Delaware.

Hopefully it pays on time because Delaware charges $200 and 1.5% interest for each month the payment is late.

Exxon

Exxon stands out as significant here, proposing to shift from New Jersey to Texas. It’s attracted some commentary already. Ann covered it for the blog. We also have a recent Bloomberg OpEd from Christina Sautter. Tony Rickey also addressed the move and offered thoughts in response to Sautter’s view.

One common discussion point around it is that Exxon has not included a threshold for bringing shareholder derivative claims as part of the proposed move but also has not committed to not adopt such a provision in the future. Texas now allows companies to set an ownership threshold of up to 3% of the stock as a requirement for bringing a derivative claim. The Texas provision recently survived a challenge when Southwest added a 3% threshold via a bylaw amendment after it adopted the provision after receiving a stockholder’s demand.

How should stockholders think about the possibility that Exxon will add such a provision in the future? Here, views will vary. Some stockholders might worry that they could lose their ability to bring a claim without assembling a broader coalition. Other stockholders might prefer that Exxon have an easy way to tidily dispose of lawsuits that dissipate corporate assets and that are not supported by a meaningful block of shareholders. They might be glad that Exxon has kept its options open and not committed to never adopt such a provision without amending its charter. The business environment changes and Exxon preserved its flexibility. It’s not hard to imagine that wars, changing climate conditions, or other developments might create conditions where Exxon could face more stockholder litigation.

My concern is that these issues are often discussed in a one-sided way where any restriction on stockholders’ ability to bring claims gets decried as muzzling stockholders or taking away investor protections. But there is another side to the coin that low-value lawsuits may do more harm than good by distracting management, dissipating corporate funds on attorney fees, and driving insurance premiums up. It’s a tradeoff.

The optional up-to-3%-threshold operates as a filtering mechanism. A good filter will screen out low-utility claims and allow stockholders to go to court when there has been a problem that needs to be addressed. I don’t know whether the optional Texas filter gets the calibration right, but we can watch it over time and see how it works out.

New Role & Disclaimer

Last week, Wilson Sonsini announced that I had joined them as Senior Of Counsel in the firm’s Corporate Governance practice. I’m looking forward to helping the firm’s clients make thoughtful governance decisions. I’m also hopeful that having a presence in both the academic and practicing world will make me a better professor and also help me continue to improve the treatise I write with Lori Johnson on Nevada Business and Commercial Law. It’s one thing to view the law from an academic remove watching statutory changes and decisions come out. Seeing how people use the Nevada statute in practice will help me better understand what areas need more development for practical utility.

My full-time role at the William S. Boyd School of Law at the University of Nevada, Las Vegas (UNLV Law) continues. I write these blog posts on my own behalf and not on behalf of UNLV Law or Wilson Sonsini. Neither UNLV Law or Wilson Sonsini approve these posts and they are not responsible for them. Any errors and omissions are mine alone.*

*No really. Do you think Wilson Sonsini wouldn’t have fancier and consistently-sized graphics and charts? I’m doing this on my own with some help from law student research assistants.

Southwest is (and has long been) a Texas-incorporated company.

After Texas reformed its governance laws, Southwest adopted a bylaw requiring that derivative actions only be brought by shareholders with a minimum 3% stake.

Subsequently, an investor holding only 100 shares filed a derivative action in federal court, alleging that Southwest’s directors breached their fiduciary duties to the company when they abandoned Southwest’s “Bags Fly Free” policy in the wake of an activist intervention by Elliott Investment Management. (It’s a silly lawsuit, whatever). Southwest invoked the bylaw in its motion to dismiss.

The plaintiff offered a number of challenges to the Texas law, including that it was inapplicable to him because he served a demand before the law passed, and that the law was impermissibly retroactive as applied to his claim. In Gusinsky v. Reynolds, 3:25-cv-01816, the court rejected these.

The plaintiff also, however, alleged that Southwest’s directors breached their fiduciary obligations by adopting such a limit on derivative lawsuits in the first place, a claim that the court rejected because … the plaintiff did not have the 3% stake necessary to advance it.

More seriously, it’s worth noting that when plaintiffs in Delaware brought a facial challenge to a litigation-limiting bylaw in Boilermakers Local 154 v. Chevron, then-Chancellor Strine noted that if the bylaw were invoked to dismiss a specific claim, the plaintiff could at that point “sue” to establish that applying the bylaw to that particular case breached the directors’ fiduciary obligations. (Though Strine may have envisioned a second lawsuit that would be brought in compliance with the bylaw, which itself merely declared Delaware an exclusive forum).

Strine also, however, suggested that, in a specific case, plaintiffs could make an argument that the bylaw was unreasonable as applied under contract law principles, which was something the Southwest plaintiff tried, as well. However, he argued that the bylaw was unfair because it was adopted in response to his written demand, which the court rejected as a factual matter, finding it more plausible that the bylaw was adopted in response to the new Texas law authorizing it.

Which means the contract argument might not be … off the table entirely … if the facts warrant it in the future. As for the fiduciary argument, well, all things considered, I’d have preferred to see it advanced in a case where the underlying claims inspired a little more sympathy.

And another thing. New Shareholder Primacy podcast!  This week, me and Mike Levin talk about Exxon’s proposed move to Texas, and about pending proxy contests in 2026. Here at Apple; here at Spotify; and here at YouTube.