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There’s a saying apocryphally attributed to Davy Crockett: “You may all go to Hell and I will go to Texas.” That’s what lawmakers in the Lone Star State are hoping to hear from companies that are displeased with Delaware, as jurisdictions vie to woo corporates away from the First State. As the FT’s Sujeet Indap reported this week, Texas and Nevada are in the midst of transforming their corporate legal structures in order to become the preferred option to Delaware.
Twelve public companies are aiming to “Dexit” this proxy season, with ten heading to Nevada and two toward Texas. In the latest move to give Texas an edge, Governor Greg Abbott signed two state senate bills into law that limit pesky smaller investors’ ability to introduce shareholder proposals by mandating a 3% ownership threshold. The Deal's Jean Haggerty highlighted that boards of companies that have (re)incorporated in Texas, like Tesla and Southwest Airlines, have already amended bylaws to reflect the changing legal landscape. Both states are striving to appeal specifically to controlling shareholders and founder-led companies that have dealt with tensions in the Delaware Chancery Courts, à la Tesla, Meta and others.
The whole question of the role of controlled shareholders and dual-class stock has been debated by academics and practitioners alike, particularly whether non-control shareholders benefit from this structure.
In a recent essay in the Oxford Business Law Blog and new paper, Wilson Sonsini’s David Berger and Libra Legal’s Pierluigi Matera argued that when it comes to founder-led, dual-class companies, investors ultimately care more about results than governance: “The data shows investors are not ideological… If dual-class structures help companies outperform, innovate, and remain mission-driven, then they deserve a place in the modern corporate governance toolkit.”
Have grear weekend,
GPP Team
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