Texas didn\u2019t become America\u2019s economic engine by accident. We earned it\u2014through long-term policies that reward investment, protect entrepreneurship, and keep markets open to innovation. <\/p>\n
Those choices have delivered more jobs, more corporate relocations, more capital formation, and an economy that increasingly competes not just with other states, but with other countries.<\/p>\n
That success helps explain why Texas is now emerging as the new center of gravity in US finance. <\/p>\n
The Texas Stock Exchange, which is taking shape in Dallas as a serious entrant into US capital markets, represents a larger trend. Market participants are choosing competition over complacency, and they\u2019re choosing governance rules that prioritize long-term value over institutional friction.<\/p>\n
So I was surprised to see this economic success get criticized in a recent Bloomberg Law commentary<\/a>. I wasn\u2019t, however, surprised by the nature of the critique, which argues in the same breath both that Texas is thwarting shareholder democracy and also that shareholder democracy itself is a harmful fiction.<\/p>\n That contradiction reveals the point. The real objection to Texas\u2019 reforms isn\u2019t concern for shareholders but a fear that Texas is empowering shareholders and boards to grow value at the expense of the gatekeeper class\u2014activists, plaintiffs\u2019 lawyers, and professional intervenors\u2014who often have little or no economic exposure to the corporations they seek to control.<\/p>\n As the author of many of Texas\u2019 recent corporate reforms, I can say firsthand that they\u2019re rooted in a reality that too many governance debates ignore. Shareholder democracy isn\u2019t about who can grab the microphone; it\u2019s about ownership. <\/p>\n The shareholders\u2014the people whose savings and retirements are actually invested and who rely on economic growth to secure their future\u2014are the ones who bear the cost of bad incentives, meritless lawsuits, and ideological distractions that siphon resources away from growth.<\/p>\n Consider derivative litigation. Texas saw a problem that boardrooms across the country have understood for years: Companies were choosing to stay private longer, in part because the risk of litigation<\/a> had become a structural penalty attached to public markets. That\u2019s bad for entrepreneurs, bad for the economy, and bad for ordinary investors who lose the opportunity to invest early in growing firms.<\/p>\n Even worse, much of this litigation has had little to do with shareholder recovery. Derivative lawsuits too often function as a wealth transfer from the corporate enterprise to a narrow class of plaintiffs\u2019 lawyers. Shareholders, the supposed beneficiaries, rarely see meaningful returns.<\/p>\n But companies still pay through enormous legal costs, settlement pressure, and years of distraction. In some cases, even a corporate victory can come with tens of millions of dollars in incurred costs.<\/p>\n Texas responded<\/a> with a principle that should be uncontroversial in a market economy: Lawsuits that steer corporate decision-making should be controlled by shareholders with skin in the game. Now, under Texas law, corporations can adopt a reasonable derivative ownership threshold before a plaintiff may bring certain claims.<\/p>\n This doesn\u2019t shut out ordinary investors\u2014it protects them. It ensures that litigation is brought by investors who will benefit if the claim is meritorious and bear the cost if it isn\u2019t. That alignment is health, rational, and responsible.<\/p>\n Now consider shareholder proposals. The proxy process has long been criticized for allowing holders of minimal stakes to hijack annual meetings to advance objectives unrelated to the corporation\u2019s long-term performance. Regulatory and interpretive changes in recent years haveexpanded the permissible scope of proposals, including those focused on broad social or political issues even where they lacked clear connection to the company\u2019s core business. <\/p>\n Predictably, shareholder proposals proliferated\u2014not as tools for strengthening long-term value, but as instruments for activist leverage.<\/p>\n This shift created a perverse result: Proposals increasingly were driven not by shareholders seeking to grow retirement portfolios, but by an activist class seeking to use the corporation as a platform. It demanded corporate resources, management time, and shareholder attention, all for the benefit of a single group without regard for a company\u2019s strategy, profitability, or operational mission.<\/p>\n Texas has drawn a clear line. Activists, nongovernmental organizations, and academics no longer get to commandeer corporations at the expense of investors whose value shareholders have recognized. The most visible example came when Tesla Inc. shareholders voted to ratify<\/a> Texas\u2019 governance reforms. <\/p>\n Critics mocked this choice as \u201ccult-like,\u201d but that says more about the critics than the shareholders. Perhaps the gatekeeper class should try to understand why investors would choose predictable rules that protect the value of their holdings, shield companies from lawsuit-driven extortion, and reduce the incentives for political theater at annual meetings.<\/p>\n Texas is taking shareholder democracy seriously, not undermining shareholders. We recognize that corporate governance should serve owners, not gatekeepers, and should preserve the ability of boards and executives to build long-term value without being taxed by constant litigation and activist intrusion.<\/p>\n That is why \u201cY\u2019all Street\u201d matters. It isn\u2019t simply a new exchange. It\u2019s a signal that capital will flow toward governance environments that protect the true stakeholders. Shareholders aren\u2019t being silenced in Texas; they\u2019re being respected. And increasingly, they\u2019re voting for Texas with their feet.<\/p>\n This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.<\/p>\n Author Information<\/p>\n