Earlier tonight, the Nevada Senate voted unanimously to pass AB239, introduced by Nevada Assemblymember Joe Dalia. The legislation was put forward by the Nevada State Bar’s Business Law Section. The State Bar’s explanatory memorandum summarizes the changes. Although it has not yet been signed by Governor Lombardo, I expect that it’s legislation he’ll be happy to sign.

I’ll cover three changes here: (1) jury-trial waivers; (2) controlling stockholder duties; and (3) merger approvals.

Bench Trial Elections

This is how the Nevada Business Law Section explained the change:

The proposed amendments to NRS 78.046 are designed to address the ability of a corporation to waive jury trials with respect to “internal actions” (as defined by NRS 78.046(4)(c)). In other words, the corporation can essentially require that such actions be heard only before a judge rather than before a jury. This amendment is aimed at providing additional predictability with respect to the resolution of internal actions, and will also give some comfort to companies considering a move to Nevada, since jury trials are unavailable for cases heard in the Delaware Court of Chancery.

One of Delaware’s advantages has been that Chancery only has bench trials. The possibility for jury trials in other jurisdictions added layers of uncertainty to keep corporations in Delaware. A jury trial shifts how lawyers present a case and adds in possible appeals about jury trial instructions and other jury-related delays. Now, it appears that all three states have converged on permitting bench trials for internal corporate actions.

There are still some differences. Delaware makes bench trials mandatory. Nevada allows corporations to opt-in to bench trials by charter provision. Texas allows jury trial waiver by corporate bylaw. I’m going to need to start making charts to keep track of the differences between the states.

Controlling Stockholder Duties

Duties

The legislation also addresses controlling stockholder duties. The Nevada Business Law Section explains the change as providing:

that the only fiduciary duty owed by a controlling stockholder is to refrain from exerting undue influence over a director or officer with the purpose and proximate effect of inducing a breach of fiduciary duty by said director or officer that (a) results in liability under NRS 78.138 and (b) involves a contract or transaction where the controlling stockholder has a material and nonspeculative financial interest and results in a material, nonspeculative and nonratable financial benefit to the controlling stockholder.

Cleansing

The changes allow for disinterested directors to approve a transaction with a controlling stockholder, granting a presumption that there was no breach of fiduciary duty.

The proposed amendment further provides the presumption that there is no breach of fiduciary duty by a controlling stockholder if the underlying contract or transaction has been approved by either (1) a committee of only disinterested directors or (2) the board of directors in reliance upon the recommendation of a committee of only disinterested directors.

Liability

The legislation also gives controlling stockholders protection similar to the Nevada business judgment rule for officers and directors. It also notes that Nevada aims to “maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.”

Lastly, the proposed amendment provides that a stockholder is not individually liable to the corporation or its stockholders or creditors unless: (1) the stockholder is a controlling stockholder; (2) above-reference presumption has been rebutted; and (3) the controlling stockholder has been found to have breached its fiduciary duty. This approach is structurally and conceptually comparable to the approach taken with respect to corporate directors and officers under NRS 78.138(7). The amendments to 78.240 are especially important in light of the Delaware Legislature’s recent push to codify in this area, and will help maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.

Merger Approvals

In response to Activision Blizzard, Nevada now joins Delaware in making clear that boards do not need to approve the “final” documents. The Delaware amendments authorize boards to approve documents “in final form or substantially final form.” To avoid litigating over what is “substantially final,” the Nevada legislation allows boards to use their business judgment to decide what is substantial enough.

There is more to cover here and I’ll be busy updating the Nevada treatise after this.

It’s frequently been observed that (perhaps until recently) Delaware’s real competition was not horizontal, but vertical – if Delaware did not at least appear to be meting out appropriate corporate discipline, the federal government would step in to preempt its law.  Right now, however, we’re seeing a full on horizontal race to the bottom, as Texas, Delaware, and Nevada compete to absolve corporate managers of any fiduciary liability.  All three states could, of course, just say that – explicitly provide that shareholders have no cause of action for fiduciary breach – but all three (especially Texas and Delaware) feel the need to create a maze of procedural limitations on shareholder action that collectively add up to eliminating litigation rights without saying as much in so many words.  All of which provides support for the argument I made in my paper, The Legitimation of Shareholder Primacy, that the rules are intended as a display to the general public in order to create the illusion that limits are being placed on managerial power. 

One possibility I raise in the paper (which was actually drafted before SB 21, though I’ll update it eventually) is that we are in a moment when there is little risk of robust federal intervention in corporate governance, and so corporate managers feel free to demand – and states are willing to supply – a more lax corporate law.  By contrast, when the threat of federal intervention is more imminent, corporate managers are willing to tolerate greater restrictions from the states (Delaware) as a less-intrusive alternative.

But that’s a story about federal legislation (and federal regulation).  It’s not a story about the federal courts.

Which brings me to In re Shanda Games Securities Litigation, 128 F.4th 26 (2d Cir. 2025), decided by the Second Circuit earlier this year.  Shanda Games was a Chinese firm incorporated in the Cayman Islands, with American Depository Shares that traded on the NASDAQ.  A buyout group that held 90% of the votes, and included the CEO and certain board members, agreed to a freeze-out merger and issued a proxy statement that allegedly low-balled the company’s performance and prospects in order to justify the merger price of $7.10 per ADS.  Eventually, the merger was completed.  Three shareholders who sought appraisal under Cayman law were able to obtain $12.84. 

So, remaining shareholders sued under the federal securities laws.  Now, the false information was contained in a proxy statement, but, because the buyout group controlled 90% of the votes, technically, the minority shareholders’ votes were irrelevant – therefore, Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), barred shareholders from bringing a Section 14(a) claim that the false proxy misled shareholders into voting for a bad deal.

Instead, the shareholders sued under Section 10(b), alleging that the false proxy statement misled them into giving up their statutory right of appraisal.  (That, by the way, is also a claim that can be brought under Section 14(a), see Wilson v. Great American Industries Inc, 979 F.2d 924 (2d Cir. 1992), but the shareholders chose to go the 10(b) route, possibly? Because they didn’t want to get into a thing about how individual shareholders voted.  I dunno.). 

But 10(b) is kind of an odd fit for a loss-of-appraisal-rights claim.  Under Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), the fraud must have occurred in connection with a purchase or sale, so, in this case, the shareholders claimed that they tendered their shares for the merger consideration, instead of holding them back to exercise their appraisal rights, and that counted as the “sale” for Blue Chip purposes. 

But then the shareholders had a second problem: reliance.  They could, of course, individually claim that they read the proxy statement and made a decision about appraisal based on its contents, but that kind of thing cannot be adjudicated on a class basis. Normally, in class cases, Section 10(b) shareholders solve this problem by satisfying the element of reliance via the fraud on the market presumption.  We presume that share prices were affected by the fraud; we presume that people who buy and sell at the market price “rely” on that price as a reflection of its value; therefore, anyone who trades at the market price relies, indirectly, on the fraudulent statements, and there is no need for plaintiff-by-plaintiff proof.

Here, though, the shareholders didn’t trade at the market price; they were forced into a bad merger, and in that sense, they didn’t rely on anything.  So, the shareholders argued that the market price reflected the false proxy information, and they were entitled to a presumption that they relied on the market price when making the decision not to seek appraisal.  It was that market price that lulled them into thinking an appraisal action wouldn’t be worth it.

The Second Circuit panel, in a 2-1 decision, agreed.  The court reasoned that the market price of the stock reflected the information contained in the false proxy statement; therefore, the market price was depressed.  Therefore, the merger consideration looked good by comparison; therefore, shareholders chose not to seek appraisal.  Thus, shareholders “relied” on the market price, not for trading decisions, but for decisions about whether to exercise their appraisal rights.  

In sum, shareholders did not have the burden to prove they would have exercised their appraisal rights had they known the truth; instead, the Second Circuit afforded them a classwide presumption of reliance – and shareholders could advance their claims.

In dissent, Judge Jacobs pointed out that, even if the proxy statement had been truthful, the market price would still have been depressed because the consideration in the pending freeze-out merger would have put a ceiling on it.  The majority dismissed that argument in a footnote, hypothesizing that if the proxy statement had been accurate, appraisal arbs would have bid up the stock price in anticipation of later filing Cayman Islands lawsuits.

So.  This is quite an extension of the fraud on the market presumption.  Theorists have long been troubled by the presumption that traders “rely,” in a subjective sense, on the market price as an indicator of value – as Justice White in Basic, Inc. v. Levinson, 485 U.S. 224 (1988), and Justice Thomas in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014), point out, often the fact that you traded means that you don’t think market price reflects value.  Still, even if you ignore that part of the fraud on the market doctrine, there still remain the otherwise-reasonable presumptions that (1) market prices are distorted by fraud; and (2) this causes injury to those who trade at market prices.

But in Shanda Games, the Second Circuit took the “presumption” to a whole ‘nother level.  Leaving aside the back and forth about what the market price would or would not have reflected had the truth been disclosed, it requires a different chain of inferences to adopt a legal presumption that NASDAQ traders would have gone to the trouble of bringing appraisal actions if they had known the truth. It ignores the costs associated with such actions, the downside risks of litigation, they delays, and so forth.

To put it another way, in a typical fraud on the market action, it’s relatively easy to assume that if the truth had been known, the plaintiff might have done the exact same thing they did before – buy or sell – but at a different (better) price.  Or, to assume that if the price had changed, the plaintiff would have changed trading strategies.  Either way, the critical thing you’re assuming is something about markets – the market in which the plaintiff traded would have been a different one had the truth been disclosed.  The plaintiff literally could not have done the same thing – buy that security at that exact same price – had the truth been disclosed, because the security itself would have had a different price.

Here, however, a presumption that the market would have looked different – the market price would have been higher – does not necessitate that plaintiff shareholders would have behaved differently.  You still have to add the extra inference that they would have looked at that market price and done something completely different and far more burdensome, namely, seek appraisal.

The court, in other words, reached pretty far to get where it wanted to go. 

But.  Let us engage in a hypothetical.

Suppose Shanda Games had been incorporated in Delaware.  Pre-SB 21.

Suppose therefore there had been robust protections in place for minority shareholders facing a freezeout merger – indeed, likely there would have been a vigorously litigated parallel state court action.

Would the Second Circuit have come out the same way?  Maybe, but I suspect not.  I suspect that on some level, what may have been driving the court here was the obvious unfairness of the situation and the complete lack of alternative remedy, because the company was organized in a jurisdiction that is sort of infamous as a place to incorporate in order to avoid obligations to shareholders (or anyone else).

The lesson is, then, that Texas, Delaware, and the corporate bar may be making the correct calculation that no federal regulators are going to step in to fill the corporate governance gap – but federal regulators are not the only players.

And no other thing.  No new Shareholder Primacy podcast this week but Mike and I will be back next week.  In the meantime, peruse our old episodes, or email us with stuff you’d like us to talk about at shareholderprimacy@freefloat.llc

Earlier this week, Texas Governor Abbott signed SB29. Law firms have begun pushing out their client alerts and summaries of the legislation. Here are some the materials out already in no particular order:

There will undoubtedly be more materials to come on this. Most of these client alerts are likely penned by the corporate group alone. Ultimately, full-service firms giving advice should pull in their intellectual property teams to advise about Texas as well. When companies take intellectual property risks into account, it will be interesting to see whether this will lure a mass of public companies to Texas or just ones that already have substantial Texas operations.

Firms focused solely on corporate governance provisions might not immediately consider other possible risks with a Texas charter. One of the major risks companies should also consider, is what impact would a Texas corporate charter have on their ability to potentially escape intellectual property litigation in Texas? Law firms have long warned about the risks of Texas exposure because of its intellectual property litigation hubs. For example, King and Spaulding warned that:

Jurors in the [Eastern District of Texas] tend to respect the patent(s). They also award large damage amounts. The Judge is unlikely to overturn a jury verdict so the possibility of post-trial relief is remote. About 5% of patent cases filed in Marshall go to trial and the plaintiff wins in about 78% of them.

Incorporating in Texas caries a unique risk because it makes venue proper in Texas for intellectual property litigation. In 2017, the Supreme Court decided TC Heartland, and held “that a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” This led to a decline in Texas intellectual property litigation and an increase in Delaware’s intellectual property litigation. As so many companies are incorporate in Delaware, it makes venue proper there for those companies.

Decisions about where to incorporate have to consider a broad range of factors. What incorporating in a state means for venue in other kinds of litigation should go on that list.

Just checking in on NCPPR v. SEC, which I previously blogged about here.

In that case, the SEC issued Kroger a no-action letter allowing it to exclude a conservative shareholder proposal from its proxy materials.  The shareholders sued, claiming that the SEC had engaged in unconstitutional viewpoint discrimination against conservatives; meanwhile, intervenors National Association of Manufacturers argued that Rule 14a-8 itself was unconstitutional.  The SEC argued that its no-action decisions are not final orders subject to review.

A Dem-majority panel held that the issue was moot – not because the meeting date had passed, but because Kroger had voluntarily agreed to include the proposal in its materials, and the shareholders had soundly rejected it, which meant that should NCPPR seek to advance the proposal again in the near future, it would be excludable for failure to meet resubmission thresholds.  But the panel also held that no-action letters are not final orders and cannot be reviewed.

Judge Jones dissented on both points, and further wrote that she would have reversed the no-action decision on the ground that the SEC had engaged in viewpoint discrimination.  Since the Fifth Circuit tends to holistically lean more toward Jones than toward the Democrats, I thought en banc review was a realistic possibility.

But apparently not!  The court rejected the petition.  But at the same time, the panel revised its opinion to exclude the bit about no-action letters being unreviewable; now, the decision rests solely on mootness, and the original panel decision has been disappeared.  (For nostalgia purposes, I uploaded it here).

So I can’t help but suspect that these two events are linked; i.e., that there is some appetite at the Fifth Circuit for an en banc consideration of whether no-action letters are reviewable, but not in this particular case, so long as the panel decision (which is unpublished) solely addresses mootness.

Which means we could see movement on this at some point, though with the SEC now acting under a conservative administration – and hostile to shareholder proposals generally – the politics of it are a lot more complicated than they were under Biden. (Notably, the Trump administration opposed rehearing en banc and maintained the view that no-action letters cannot be reviewed).

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk about earnout disputes, and the latest Glass Lewis dustup. Here at Apple, here at Spotify, and here at YouTube.

This week, I haven’t seen any reincorporations, so we’re at lull.

Will that, I thought it might of interest to highlight a recent securities fraud lawsuit filed against United Healthcare. This the complaint on The Rosen Law Firm’s website.

The core allegations seem to be that United Healthcare issued misleading guidance before the killing of its CEO and stuck with its earnings guidance after the killing of its CEO on December 4, 2024:

  1. On December 3, 2024, ahead of its December 4, 2024 investor conference in New York City, UnitedHealth introduced its 2024 outlook. The guidance included net earnings of $28.15 to $28.65 per share and adjusted net earnings of $29.50 to $30.00 per share.
  2. This guidance was materially false and misleading at the time it was issued because it omitted how the Company would have to adjust its strategy (which resulted in heightened denials compared to industry competitors) because of scrutiny from the United States Senate, as well as public scrutiny. Because of the change in strategy, the Company was
    deliberately reckless in issuing the 2025 guidance as it related to net and adjusted earnings per share.
  3. On January 16, 2025, subsequent to Mr. Thompson’s murder, the Company
    announced that it was sticking with its previously issued guidance. Specifically, the Company issued a press release entitled “UnitedHealth Group Reports 2024 Results.” The press release affirmed the guidance issued on December 3, 2024. It stated the following, in pertinent part:
    UnitedHealth Group affirmed the 2025 performance outlook established in December
    2024, including revenues of $450 billion to $455 billion, net earnings of $28.15 to
    $28.65 per share, adjusted net earnings of $29.50 to $30.00 per share     and cash flow
    from operations of $32 billion to $33 billion.
  4. The statement in ¶ 33 was materially false and misleading at the time it was
    made because it omitted that the Company was no longer willing (as a result of heightened
    scrutiny against the Company, as well as open hostility against the Company from large swaths of the general public) to use the aggressive, anti-consumer tactics that it would need to achieve $28.15-$28.65 in earnings per share, or $29.50 to $20.00 in adjusted net earnings per share. As such, the Company was deliberately reckless in doubling down on its previously issued guidance.

These strike me as forward-looking statements. Usually, this means that the pleading standard for a fraud claim here will be higher than statements about historical facts. To establish liability, they’ll have to show that United Healthcare had “actual knowledge . . . that the statement was false or misleading” at the time it was made.

A few months later, United Healthcare reduced its guidance:

  1. On April 17, 2025, UnitedHealth shocked the market with revised full year
    guidance. UnitedHealth issued a press release in which it stated that its 2025 net earning outlook would be revised to $24.65 to $25.15 per share (as compared to the prior range of $28.15 to $28.65 per share), and adjusted earnings of $26 to $26.50 (as compared to the prior range of $29.50 to $30.00 per share).
  2. The press release indicated that UnitedHealth is allowing increased coverage and care for beneficiaries of Medicare Advantage. As discussed earlier, it had been documented by the United States Senate how UnitedHealth denied claims to beneficiaries under Medicare Advantage.

I’m in the skeptical camp on this suit at this point. The stronger inference here may be that United Healthcare was reeling from the public murder of its CEO and hadn’t yet decided what, if anything, to do. They affirmed guidance that was already out there. After a little time passed, they released updated guidance. I’m not confident that the plaintiffs can establish at the motion to dismiss stage that that United Healthcare clearly knew it wouldn’t achieve that guidance at the time it made the statement.

To the extent that United Healthcare could have updated that guidance sooner once it knew more, that also isn’t going to be a basis for liability. Companies generally do not have any duty to update forward-looking statements.

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.

He'd laugh.
(seriously, he’d have laughed. rest in power, boss)

I have not posted for a while. My life has been over-busy (writing, editing, helping students to and through the end of the semester, constructing exams, attending celebrations for graduating students, etc.), and at times like these, I need to step back and re-prioritize. So, while I have had a lot to say over the past few weeks, I have not prioritized saying it to you.

But I am taking time out today to write because, at this busy time in the semester, it is important that we recognize the need for self-care. (Of course prioritizing tasks is part of that . . . .) This week, the Institute for Well-Being in Law is again hosting its annual Well-Being in Law Week. Ben, Colleen, and I have posted on this before. See here for a post authored by Ben, here for Colleen’s most recent post, and here for my 2021 post.

Even though I am still up to my eyeballs in work, I am planning on popping into some of the programs. This year’s theme, The Social Rx: Boosting Well-Being with Connection, is especially salient to me. A few years ago, I was trying to do too much and also dealing with personal and family health issues. At the same time, a colleague chose to badger and bully me. In consultation with a health coach provided by The University of Tennessee’s wellness program, I decided to put a pause certain things in my long agenda of objectives and focus on connections with friends and family. I increased my group of walking partners, and we would “solve the problems of the world” on our walks in local parks and neighborhoods. I set up breakfast, lunch, and coffee dates with friends whose company I enjoyed so we could catch up and appreciate each other’s company, and I gave more emphasis to family time and communications–all of this with relative success, despite my busy weeks.

You may wonder why that was where I ended up–taking on more engagements at a busy time. That is a solid question! It is because those encounters gave me joy. They helped recharge my battery so that I could re-engage with my work and my management of personal and family affairs with renewed energy (and often with better perspective, in some cases fueled directly by the substance of those conversations with friends and family). These encounters relieved my stress and prevented it from descending into anxiety or depression.

Anyway, that may be too much sharing. But I am a wellness practitioner. A bunch of us here at the Business Law Prof Blog are. And candor is a strong trait for me. I hope this post empowers and encourages you to tackle your wellness nemeses, whatever they may be. And for those of you attending the SEALS conference this summer, do remember that I am leading a discussion session on physical wellness that you may want to attend. There will be lots of sharing there, too, hopefully to good effect.

Continuing with the series, this week I found only one reincorporation, this time from Nevada to Delaware.

Upexi now looks to move to Delaware. This is the reasoning set out:

There are a number of reasons why Delaware is an attractive state for the incorporation of the Company and why the Redomicile is in the interests of our stockholders. For many years, Delaware has followed a policy of encouraging incorporation in that state. To advance that policy, Delaware has adopted comprehensive, modern and flexible corporate laws that are updated and revised periodically to meet changing business needs. As a result, many major corporations have initially chosen Delaware for their domicile or have subsequently reincorporated in Delaware. Delaware courts have developed considerable expertise in dealing with corporate issues. In doing so, Delaware courts have created a substantial body of case law construing Delaware law and establishing public policies with respect to Delaware corporations. Our Board believes that this environment provides greater predictability with respect to corporate legal affairs and allows a corporation to be managed more efficiently.

The procedures and degree of stockholder approval required for Delaware corporations for the authorization of additional shares of stock, and for approval of certain mergers and other transactions, present fewer practical impediments to the time-sensitive capital raising process than those which apply to Nevada corporations. For example, a Delaware corporation has greater flexibility in declaring dividends, which can aid a corporation in marketing various classes or series of dividend paying securities. Under Delaware law, dividends may be paid out of surplus, or if there is no surplus, out of net profits from the corporation’s previous fiscal year or the fiscal year in which the dividend is declared, or both, so long as there remains in the stated capital account an amount equal to the par value represented by all shares of the corporation’s stock, if any, having a preference upon the distribution of assets. Under Nevada law, dividends may be paid by the corporation unless after giving effect to the distribution, the corporation would not be able to pay its debts as they come due in the usual course of business, or (unless the corporation’s articles of incorporation permit otherwise) the corporation’s total assets would be less than the sum of its total liabilities, plus amounts payable in dissolution to holders of shares carrying a liquidation preference over the class of shares to which a dividend is declared. These and other differences between Nevada’s and Delaware’s corporate laws are more fully explained below.

As the company highlighted dividend flexibility in its proxy, I infer that they intend to declare a dividend under Delaware law that they would not be able to under Nevada law.

I recently published a piece with FT Alphaville arguing that, after a brief experiment with democratization, corporate and securities law were taking on a distinct authoritarian turn.  (See also Christine Hurt, Texas, Delaware, and the New Controller Primacy).

Further to that, I doubt anyone was surprised when the Business Roundtable came out with its wish list for SEC/congressional rulemaking, which essentially is designed to minimize shareholder voice by attacking both shareholder proposals and proxy advisors.

They want to ban ESG proposals, for example and, hilariously, they cite a survey – with a pie chart! – showing that 91% of their own members agree that shareholder proposals are more focused on special interests than increasing company value.  Next, you’ll tell me that 91% of Business Roundtable members agree that income taxes are too high, employees are too entitled, and Gstaad lets just anyone in these days.

They also want to codify a policy I earlier blogged about, namely, to bar the use of Rule 14a-6 to distribute solicitation material by anyone holding less than $5 million.

But most aggressively, they want to ban the use of the universal proxy for shareholder proposals.  This use of universal proxy is a new development – the United Mine Workers, and later Starboard Value, both took advantage of universal proxy rules to run “proposal only” proxy contests.  (Mike Levin explained the situation here and here; we also had a Shareholder Primacy podcast about it here).

By running a proposal-only proxy contest, these shareholders could avoid the usual restrictions on 14a-8 (word limits, subject matter limits, etc), while allowing shareholders to vote for director candidates and other matters on the dissidents’ ballots.  The critical thing about these contests, I thought, was the shareholders running them had to invest real money to do it – the estimate was $15,000 in the United Mine Workers case.  So what these contests demonstrated was, shareholders had a nontrivial interest in running them, and it was only the artificiality of the proxy rules – which limited the ballots that shareholders could return – that prevented these contests in the past.  I personally suspect that if 14a-8 is eliminated and/or declared unconstitutional, these kinds of proposal-only proxy contests might be the new frontier. 

Which is probably why the Business Roundtable wants to nip that in the bud by making clear that administrative burdens, rather than any substantive issue, should bar shareholders from paying their own money to circulate their own alternative proxy materials, if they aren’t actually running an alternative director candidate.  I can’t imagine why the federal government should be in the business of imposing administrative burdens for the sole purpose of protecting corporate boards from hearing the views of their own shareholders, but that is why I am not a public company CEO.

But that’s not all!

Naturally, the Business Roundtable fired its usual salvo of attacks at proxy advisors, including the practice of “robovoting,” in which they, as per usual, misleadingly conflate the administrative service that permits an institutional shareholder to automatically cast ballots according to the shareholders’ preferences with the act of “blindly” following an advisor recommendation as to how those ballots should be cast.   Frankly, I agree with them – not a single institutional investor should be permitted to access voting technology.  In fact, they should all vote exclusively by sending a representative to attend shareholder meetings in person.  In the next proxy season, I look forward to seeing how many companies have a quorum to do business.

Of course, the most telling thing about the demand for proxy advisor reform is that absolutely none of it comes from the proxy advisor clients – the shareholders – and all of it comes from companies subject to shareholder discipline.

But, unquestionably, proxy advisors have been feeling the heat – this week especially, since the House, in the spirit of objective inquiry, held testimony on the subject, “Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Influence Markets.”

ISS has responded by ostentatiously including an “ESG-skeptic” template among its voting options, on the assumption that the objection here is to substantively-liberal proxy advisor recommendations, while Glass Lewis is apparently considering getting out of the advice business entirely. Instead of generating recommendations for clients, it might instead simply administer “custom” voting policies – where institutions identify their preferences, and Glass Lewis effectuates them company by company. 

Now, it’s previously been suggested that proxy advisors’ true value is not the bottom line “advice” they offer, but their substantive analysis of company proxies. Therefore, I suppose it makes sense for Glass Lewis to get out of the advice business, and sell the analysis alone. 

That said, there’s a particular regulatory quirk here.  It’s the advice part that the SEC claims constitutes a proxy solicitation; and it’s the categorization of advice as a “solicitation” that ostensibly gives the SEC authority to regulate proxy advisors.  (an interpretation of the concept of “solicitation” that is now being considered by the D.C. Circuit).

Now, one might reasonably think that if one is not offering advice – but is simply offering analysis, and a technology to effectuate client voting preferences – then one is not engaging in solicitation, and therefore is outside of the purview of (perhaps vengeful) SEC regulation.

But one would be wrong!  Because the SEC has previously concluded that even though “custom” advice simply effectuates investor preferences, it still counts as a “solicitation” and is therefore still within the purview of SEC regulation.

So, Glass Lewis – and ISS – might believe they can relieve the heat by minimizing or altering their advice-giving functions, but my cynical take is that the objections fundamentally are not about the substance of what they recommend, but about making it easy for shareholders to express preferences at all (i.e., “robovoting”)– and there’s no way either Glass Lewis or ISS can take themselves out of that business while remaining in business.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk about the ESG securities fraud lawsuit against Target (Ben Edwards blogged about the motion to dismiss here, but the story only gets crazier after that), and about what it means to “solicit” proxies under federal law.  Here at Apple, here at Spotify, and here at YouTube.

Also also. Shareholder Primacy is taking questions! If there’s something you’d like us to talk more about, drop us an email at shareholderprimacy@freefloat.llc. Once we have a critical mass of requests, we’ll go through them on the pod.

Since the last post on this topic, there are two public companies moving west–one to Nevada and one To Texas. This time it’s Mercado Libre going to Texas. Affirm is coming to Nevada. As it stands, my count is now 12 firms moving. Ten going to Nevada and two to Texas. As I had this post up before I realized Affirm had picked Nevada, I’m going to do Texas first and then Nevada. (As always, if you see one that I’ve missed, send it my way!)

Notably, Mercado Libre’s rationale for moving to Texas hinges in part on legislation the Texas legislature has yet to pass.

Mercado Libre also offered some similar reasons to other firms. This week I’ve decided to break the rationales into more and less material rationales.

More Material Concerns

Statutory vs. Judicial Environment

Mercado Libre laid this one out as “Corporate Flexibility,” but I’m going to categorize it as a statutory vs. judicially dominant environment. This is how Mercado Libre framed it:

The Board considered that Texas, unlike Delaware, has statutory provisions that would allow (though not require) MercadoLibre’s directors and officers to broadly consider the Company’s short-term and long-term interests in exercising their fiduciary duties, which will enable greater flexibility for strategic corporate actions. The DNA of MercadoLibre, embedded in our culture, is best exemplified by a proactive attitude: a relentless commitment to creating value for our users through risk-taking and innovation, all while delivering excellence as a collective. Being a pioneer is part of MercadoLibre’s DNA, and how it has become one of the top three most valuable companies in Latin America.

I’m not sure what you can consider under Texas law that you wouldn’t be allowed to consider under Delaware law.

Mercado Libre also makes the argument differently a bit later in the proxy:

In making this determination, the Board considered that while more developed, Delaware law can be indeterminate because of its use of broad, flexible standards that are applied to individual cases in a highly fact specific way. This focus on precise facts and circumstances means Delaware decisions may be less predictable for an innovative company like MercadoLibre. Although Texas has less corporate case law, Texas has a more code-based corporate governance regime, and so does not depend on cases to set out the law as much as Delaware. The Board considered that recently-enacted amendments to the Delaware General Corporation Law (“DGCL”) adopt a code-based safe harbor for transactions with directors, officers and controlling shareholders, and a more code-based books and records statute, and that these amendments were designed to improve Delaware law’s predictability in these areas. On balance, even with these amendments, however, the Board believes the Texas code-based approach is a better fit for the Company.

Mercado Libre didn’t see the recent amendments as enough to keep them in Delaware.

Existing Texas Business Courts

Mercado Libre thought the court systems were a wash now that Texas has a business court:

The Board considered the likely relative predictability of Delaware and Texas law based on differences in their judicial systems. Delaware has historically had the most respected corporate judicial system in the country and has an extensive body of corporate case law. Texas has a specialized business court system that opened in 2024 and has a smaller body of corporate case law. This factor did not alter the balance in the Board’s evaluation of Delaware and Texas.

I’ve put this in the more material camp because the Delaware court system has always been a huge advantage for Delaware. If the Texas business courts are competitive enough, that’s fairly significant.

Pending Texas Legislation

Mercado Libre explicitly announced that it was watching the Texas legislature and was hopeful that it would pass the pending legislation. This is how they put it:

In particular, the Board considered the effect of proposed legislation in the State of Texas (the “Texas Law Amendments”) in codifying the business judgment rule – the rule that the Board should be allowed to exercise its business judgment in the absence of fraud, intentional misconduct, an ultra vires act or a knowing violation of law – which the Board believes will provide greater certainty to the Board in its decision-making than will Delaware’s approach by limiting the ability of courts to revise the standard of review after a decision has been made by the Board. Codifying the Business Judgement Rule would ensure a clearer and more consistent legal framework for reviewing corporate decisions than relying on case law, as is done in Delaware, which will enable the Board to make crucial strategic decisions for shareholder value under a knowable standard which still protects shareholders from intentional misconduct, fraud and other improper acts. In the future, the Company may decide to engage in corporate actions, including but not limited to mergers, acquisitions, consolidations, dissolutions or dispositions. Moreover, the Texas Law Amendments clarifying that the Company may establish the Texas Business Court as its exclusive venue for certain claims concerning the governance of the Company and the rights of shareholders, and waive jury trials for such claims, gave the Company comfort that cases concerning the Company’s governance would be heard in an appropriate manner.

The Potential 3% Threshold

Mercado Libre also highlighted the possibility that it would be able to limit stockholder litigation by requiring plaintiffs to meet a 3% ownership threshold in the future. This is how they put it:

In addition, the Texas Law Amendments provide that the Company may establish in its bylaws an ownership threshold, not to exceed 3% of its outstanding stock, that must be held for a plaintiff to initiate a derivative claim. The Company believes that such a threshold could reduce its annual costs of litigation by limiting the ability of persons without a material economic interest in the Company to bring claims that, in the view of the Board, do not materially benefit shareholders as a whole. Upon the passage of the Texas Law Amendments, the Company may determine to adopt such a threshold. However, such threshold is not reflected in the Texas Bylaws and the Company has not yet determined whether to adopt such a threshold in the future (subject to effectiveness of the Texas Law Amendments) or, if adopted, what level to adopt it at. The Company intends to continue to evaluate this matter following the passage of the Texas Law Amendments.

Less Material Concerns

Local Connections

It has a large presence in Texas as it’s the home of its U.S. operations and the situs for occasional board meetings. Although I often see this, I tend to see this factor as less material because of the internal affairs doctrine. That you’ve got facilities and operations in a state doesn’t strike me as the most significant reason to pick Texas.

Cost Savings on Franchise Fees

Mercado Libre highlighted the lower cost to a Texas move:

For the most recent franchise tax period, the Company paid approximately $250,000 in franchise taxes to the state of Delaware, which will no longer be required to be paid if the Texas Redomestication is completed. Texas does not have a comparable annual tax based on outstanding equity. Rather, Texas’s franchise tax is based on receipts and is not expected to increase or decrease based on the Company’s state of incorporation.

Mercado Libre has a market capitalization of well over $100 billion. I don’t think the $250,000 to Delaware really matters.

Bigger Picture

There is a lot we still don’t know for this proxy season. How many firms will ultimately move? Will Texas pass these amendments? It’s possible that some firms are waiting on state legislatures to see what happens.

Affirm to Nevada.

Affirm also announced for Nevada today.

It brought in Professor Solomon like the The Trade Desk to discuss the options. Wilson Sonsini was counsel to the company:

At a special meeting of our Board on February 4, 2025, our Board, our Chief Legal Officer and representatives of Wilson Sonsini Goodrich & Rosati PC (“Wilson Sonsini”), counsel to the Company, met to discuss the Company’s state of incorporation. . . .

Shortly after the special meeting. . . our Board elected to engage a corporate law and governance expert, Professor Steven Davidoff Solomon of the University of California, Berkeley School of Law.

This is the rationale Affirm provided:

We have observed that the legal environment in Delaware has changed, with a greater frequency of litigation activity brought by well-funded firms who frequently have a significant financial interest in the outcome of the litigation. This has resulted in a less predictable and less stable landscape and body of case law in Delaware, particularly for companies, like ours, with an executive who is also a significant stockholder. Like many companies, we exist in a competitive environment and remain focused on positioning the Company to make business decisions in an agile and nimble manner. The ongoing threat of unmeritorious, but expensive and protracted, litigation over business decisions is inconsistent with that focus. That type of litigation also reallocates value and resources from the Company and its stockholders to litigation and those involved in litigation.

We have considered the amendments to the DGCL that took effect on March 25, 2025 concerning transactions involving a conflict of interest on the part of directors, officers or controlling stockholders and stockholders’ inspection rights. We have also considered the related Senate Concurrent Resolution requesting evaluation of the approach to plaintiffs’ attorneys fee awards in Delaware, the outcome of which is not yet known. Delaware law could continue to evolve and adapt in a way that addresses some of the concerns we have identified, but the effect of these developments is not yet known and the amendments will be subject to judicial interpretation.

By comparison, we believe that based on the law as it exists today Nevada can offer more predictability and certainty in decision-making because of its statutory regime. As we look to our historic growth and strategic decisions and plan for the years to come, removing judicial ambiguity can offer our Board and management clearer guideposts for action that will benefit the Company and our stockholders. Chapter 78 of the NRS is generally recognized as a comprehensive and thoughtfully maintained state corporate statute. Unlike in Delaware, where corporate law regarding fiduciary duties is significantly driven by the Delaware common law as developed by the courts based upon broad, enabling principles, Nevada codifies the fiduciary duties of directors and officers in the NRS. In turn, Nevada courts follow a more statute-based approach to director and officer duties that is less dependent on judicial interpretation.

At this time we anticipate that the Nevada Reincorporation will provide the Company with additional flexibility and stability when the Board is considering certain corporate transactions. However, the Nevada Reincorporation is not being effected to prevent an ultimate sale of the Company, nor is it in response to any present attempt known to our Board to acquire control of the Company or obtain representation on our Board. In connection with the Nevada Reincorporation, the Nevada Corporation will opt out of certain Nevada statutes that may discourage unsolicited takeovers. Nevertheless, certain effects of the proposed Nevada Reincorporation may be considered to have anti-takeover implications by virtue of being subject to Nevada law. . .

As it’s time for me to cook dinner over here, I may come back to the Affirm proxy next week!