Texas is on the brink of passing two significant bills—Senate Bill 29 and Senate Bill 1057—that are expected to offer substantial benefits to major corporations, particularly Tesla and others. These bills aim to create a more favorable business environment by reducing legal risks and raising the bar for shareholder activism, but they have sparked controversy over their potential impact on minority shareholder rights. Senate Bill 29: Legal Protections for Corporate Boards SB 29, which is awaiting Governor Greg Abbott's signature, would provide enhanced legal protections to boards of directors of publicly traded companies incorporated in Texas. This includes major firms like Tesla and Southwest Airlines. The bill makes it significantly more challenging for shareholders to sue directors, effectively sidestepping high-profile lawsuits similar to the one where a Delaware judge invalidated Elon Musk's pay package. This case, which is currently under appeal, served as a catalyst for the legislation, along with other decisions by Delaware’s chancery court that critics say undermined established corporate practices. Chris Babcock, a Dallas-based lawyer who helped draft SB 29, asserts that a broad spectrum of businesses and experts contributed to the bill and that it is balanced. However, critics like Joel Fleming, a lawyer representing investors in governance disputes, argue that the bill shifts the balance of power too much in favor of corporate management by making it nearly impossible for ordinary shareholders to hold directors accountable. Fleming points out that while the bill doesn’t change the standards corporate boards must adhere to, it drastically increases the procedural barriers for legal action. Senate Bill 1057: Tighter Rules for Shareholder Resolutions SB 1057, also on Abbott's desk, sets stricter requirements for shareholders to submit resolutions at annual meetings. Under this bill, shareholders must own at least 3% of a company’s stock or $1 million worth of shares and gain support from holders of two-thirds of the company's shares before their proposals can be considered. This could disproportionately affect companies like Tesla, where gathering such support could be prohibitively expensive and deter all but the wealthiest investors from participating in corporate governance. Sen. Bryan Hughes, a Republican backing SB 1057, says the bill is designed to protect Texas businesses from "politicized attacks." He cited the success of the small hedge fund Engine No. 1 in reshaping Exxon’s board in 2021 as a key influence, though the bill does not apply to director nominations. Opponents, including James McRitchie, a small investor from California, contend that these changes will marginalize minority shareholders and make Texas less attractive for investors who value transparency and accountability. Corporate Support and Criticisms Both bills have moved swiftly through the legislative process with minimal organized opposition. Major corporations such as AT&T and Nasdaq have expressed support for SB 29, and the Texas Stock Exchange, a fledgling platform aiming to draw listings away from New York, has backed both bills. Glenn Hamer, the head of the Texas Association of Businesses, emphasized that Texas has the best economy and is becoming the economic engine of the U.S., suggesting that companies would prefer legal treatment in Texas over Delaware. However, industry insiders and some legal experts have raised concerns about the potential consequences. Brian Quinn, a law professor at Boston University, warned that these bills could turn Texas into a "rogues' gallery" similar to Nevada, known for its lax and pro-management corporate laws. Quinn argues that giving corporate managers too much power could undermine investor confidence. Babcock, on the other hand, maintains that Texas will maintain stricter shareholder oversight than Nevada, highlighting that Texas directors must remain loyal to their companies and can be more easily removed by shareholders. Broader Implications and Future Outlook The passage of these bills could have broader implications for corporate governance in Texas. Hughes refers to SB 29 as a “Dexit” (Delaware Exit) move, capitalizing on Texas’s specialized business court created last year. The bills are seen as part of Texas’s strategy to become a more attractive option for businesses looking to relocate or incorporate, particularly those with influential CEOs like Elon Musk. Supporters believe that these measures will make Texas a more appealing venue for corporate headquarters and legal proceedings, boosting the state’s economic growth and competitiveness. Critics, however, fear that Texas could become a refuge for corporate practices that prioritize management interests over those of minority shareholders, potentially leading to a decline in corporate accountability and investor trust. Industry Insights and Company Profiles Industry insiders suggest that the bills could reshape the business landscape in Texas, drawing companies away from Delaware and other traditional corporate havens. The Texas Association of Businesses, led by Glenn Hamer, is a strong advocate for these changes, citing the state's robust economy and business-friendly environment. Companies like Tesla, already benefiting from Texas’s favorable policies, could further entrench their positions if the bills pass. Critics argue that the lack of effective shareholder oversight could harm long-term corporate health and investor relations. Brian Quinn’s concerns about Texas becoming a "rogues' gallery" highlight the delicate balance between creating an attractive business environment and safeguarding investor rights. As Governor Abbott reviews the bills, the outcomes could set a new standard for corporate governance in the Lone Star State.