Texas, Nevada, and Delaware have been competing to relieve corporate managers of liability for breach of fiduciary duty (the interesting question is not the race so much as why none feels sufficiently emboldened to say what they mean – shareholders can’t sue – they all feel it necessary to dress up their legislation in a lot of conditions so as to obscure the practical effect), but what if they could compete to eliminate other shareholder rights?

That’s the innovation currently being advanced by the Texas Legislature, with HB 4115 – just passed the House. 

The legislation tackles the scourge of nonbinding shareholder proposals.  Corporations that meet certain criteria can amend their governing documents – and I can’t tell whether that means bylaws, the certificate, or either, though I suspect the latter – to block shareholder proposals unless the shareholder holds the lesser of $1 million worth of securities or 3% of the securities entitled to vote, and solicits at least 67% of the corporation’s voting power (again, not sure if that means sending proxy materials or if 14a-8 inclusion in the corporation’s proxy materials is sufficient).

The conditions to take advantage of this provision are that the corporation must: (1) be listed on a national exchange and either (1) have its principal office in Texas or (2) be listed on an exchange that, as far as I can tell, meets criteria that likely only the Texas Stock Exchange can currently meet.

So the first thing to note is that, as far as I can tell, the current version of the bill – there were earlier ones – does not require the company to be organized in Texas.  That sets up a delightful fight about the internal affairs doctrine and federal preemption.  Federal Rule 14a-8 – which governs shareholder proposals for public companies – largely attempts to use proxy rules to replicate the rights that shareholders have under state law, meaning, under the law of the organizing state.  Texas’s bill would purport to limit shareholder rights regardless of the organizing state, so I’d assume Delaware would, you know, have something to say about that.  

That said, the bill appears to encourage either Texas headquarters or Texas exchange listing.  But if that’s the goal, joke’s on them because, as Mohsen Manesh convincingly argues, even a Delaware corporation can amend its charter – and possibly even its bylaws – to prohibit shareholder proposals on any terms it likes.  Which means, if Professor Manesh is right, all of this is theater.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I use Tesla’s wildly … umm, optimistic … projections as a jumping off point to talk about the legal and practical implications of corporate predictions. Here at Apple, here at Spotify, and here at YouTube.

And finally … goodbye, Justice Souter. You were an excellent jurist and better person.