I keep explaining in various spaces so I may as well articulate it here too: It’s tough to make predictions, especially about the future, but I would be surprised if Texas wins the current chartering race, or at least, wins the race it’s currently running.

The issue for Texas is that it keeps demonstrating that it is not interested in crafting a well-designed – even manager-friendly – corporate law; instead, it is interested in using corporate governance as another cudgel in the culture war.

Let’s look, for example, at two recent amendments to its corporate code: allowing corporations to limit shareholder proposals by those who hold either less than $1 million worth of stock or 3% of voting shares; and the proxy advisor law that puts a variety of restrictions on proxy advisor advice.

These laws explicitly take aim at liberal-coded measures; shareholder proposals, for example, have historically been oriented toward liberal causes (despite a recent upsurge in anti-ESG proposals), and the proxy advisor law is targeted at “ESG” advice.

The laws are also a model of poor drafting. The shareholder proposal law, for example, does not apply to corporations chartered in Texas, but does apply to corporations headquartered in Texas or listed on the (currently nonexistent) Texas Stock Exchange. The proxy advisor law, by contrast, applies to corporations chartered in Texas or headquartered in Texas, but not companies listed on the TSE. I don’t know why the inconsistency, and I’m guessing neither does the Texas legislature.

The shareholder proposal law allows corporations to limit proposals by shareholders with less than $1 million in stock or less than 3% of the stock, but does not make clear whether it’s the lesser or the greater of the two. I.e., if you own $1 million but less than 3%, can the corporation bar you from making proposals? I cannot tell. It also allows the company to limit proposals to those who solicit 67% of the shares, but if it’s a 14a-8 proposal included in corporate documents, doesn’t that mean 100% of shareholders are solicited?

The proxy advisor law, of course, defines “ESG” advice as nonfinancial, even though the “G” includes “governance” – and requires proxy advisors to confess publicly to offering nonfinancial advice whenever they make ESG recommendations. That would cover virtually every bit of advice a proxy advisor offers, and label such matters as board independence, overboarding, and related party transactions as per se nonfinancial concerns. The statute takes pains to define the term “proxy proposal,” but then goes on to actually use the term “shareholder-sponsored proposal” and I have no idea if they are the same thing (the reason they may not be is, not all shareholder-sponsored proposals are offered through the Rule 14a-8 process). The final portion of the statute, titled “conflicting voter advice,” appears to attack scenarios where a proxy advisor offers different advice to different clients, but enigmatically includes within its sweep scenarios where the advisor counsels that “one or more clients vote for or against the proposal in opposition to the recommendation of the company’s management,” i.e., simply opposes management – which has nothing to do with conflicting voter advice.

There’s more, but I’m lazy and that’s enough to make the point: No one took these laws seriously as actual regulation of corporate governance; they read more as an expressive attack on wokeness. But that has not dissuaded the Texas Attorney General from – and this just hit the docket today – immediately appealing to the Fifth Circuit to overturn the preliminary injunction that a Texas court issued to block him from enforcing the proxy advisor law. At the same time, he’s chosen to launch an investigation into Glass Lewis’s and ISS’s ESG advice.

Meanwhile, there is one thing we know for a fact corporations want, because they strong-armed the Delaware legislature to get it: the ability to sign expansive shareholder agreements. But those kinds of agreements continue to be somewhere between very difficult and impossible to adopt in Texas, see TX BUS ORG §§ 21.101(b); 21.109, and the Texas legislature apparently preferred to spend its valuable session time outlawing ESG than loosening those restrictions.

The problem with Texas as an incorporation hub, then, is that the signal being sent by the legislature is that it views corporate law solely as a mechanism to police business activity that is insufficiently conservative-coded, and that makes boards vulnerable to retaliation if they fail to toe the line. The danger is especially acute in light of poorly-reasoned decisions like Spence v. American Airlines, 775 F. Supp. 3d 963 (N.D. Tex. 2025), where a Texas (federal) court held American Airlines breached its fiduciary duties under ERISA by including ordinary BlackRock funds in its 401(k) plans, at a time when BlackRock supported nonbinding climate change proposals (discussed with Mike Levin on the Shareholder Primacy podcast, here).

You might be thinking, Texas’s protections against shareholder lawsuits are so robust that there would be little opportunity for a politically-motivated attack to gain traction. But I can see ways that a sympathetic (or unsympathetic, depending on which side of the “v” you sit) court could allow a claim to proceed. For example, Texas bars inspection of books and records in anticipation of litigation, see TX BUS ORG § 21.218; but a claimant might disclaim a litigious purpose. And, that permission Texas corporations have to limit shareholder lawsuits to 3% holders? Only applies in derivative actions, see TX BUS ORG § 21.552, and the direct/derivative distinction is endlessly malleable. Finally, of course, the Texas Attorney General could always sue to dissolve a corporation’s charter.

Delaware famously dismissed a shareholder lawsuit against Disney concerning its opposition to the “Don’t Say Gay” law, but I genuinely can’t be sure a Texas court would do the same – and, more importantly, neither can corporate boards.

And another thing. No new Shareholder Primacy podcast this week, but if you really want to hear me talk even more about Elon Musk’s pay package, and Texas corporate law vs Delaware’s, here’s me on Fordham Law School’s Bite-Sized Business Law podcast, and on Bloomberg’s Odd Lots podcast.