ExxonMobil’s shareholders are being asked to cast a vote this May that they may not fully understand. The company’s board has unanimously recommended moving its state of incorporation from New Jersey to Texas, framing the change as a step toward “maximizing shareholder value.”
That framing is misleading. What the reincorporation actually does is place ExxonMobil under a body of Texas corporate law that gives the board sweeping authority to restrict shareholder rights at any time, through a simple bylaw amendment, without asking shareholders for permission. Shareholders are being invited to approve a transaction that hands the board the keys to a governance regime that those same shareholders may one day wish they had never unlocked.
For general counsel and business lawyers advising companies or their investors, this is not an abstract concern. Texas enacted major revisions to its Business Organizations Code in 2025, and yet those revisions remain almost entirely unknown to shareholders outside institutional investor circles. Every lawyer in this space needs to understand what Texas law now permits and why the opt-in structure is itself the story.
Senate Bill 1057 and Shareholder Proposal Restrictions
Texas Senate Bill 1057, enacted in 2025 as Texas Business Organizations Code Section 21.373, allows Texas-incorporated public companies to impose shareholder proposal thresholds that would effectively eliminate the ability of retail and small investors to place items before the full shareholder body at an annual meeting. Under current federal proxy rules, any shareholder holding company securities worth at least $2,000 for three years, $15,000 for two years or $25, 000 for one year can submit a proposal. SB 1057 blows that framework up at the state level.
A Texas corporation may require a proposing shareholder to hold the lesser of $1 million in market value or 3 percent of the company’s outstanding voting shares for six consecutive months. The proposing shareholder must also solicit affirmative support from holders representing 67 percent of outstanding voting power before the proposal can reach the ballot. If the proponent does not satisfy these requirements, the company may exclude the proposal from the agenda and proxy materials entirely. To date, no corporations have adopted SB 1057.
At ExxonMobil, a 3 percent stake currently represents approximately $19 billion. A $1 million threshold, though significantly lower, still represents 500 times the lowest federal threshold. The most recent Federal Reserve data show that the median value of total directly held stock among American families is $15,000. Thus, these thresholds shut out most retail investors and likely many other smaller investors. They are not procedural refinements. As I have argued elsewhere, they are designed to price retail and smaller shareholders out of the governance process entirely.
These thresholds are also a solution in search of a problem. According to the Council of Institutional Investors, shareholder proposals are concentrated at the largest public companies. Across the Russell 3000, companies receive a shareholder proposal only once every 8.3 years on average, and for those that do receive one, the median is just one proposal per year. The governance mechanism SB 1057 is designed to suppress is, for most corporations, essentially nonexistent.
Senate Bill 29: A Restriction on Shareholder Rights
Senate Bill 29 went further still than SB 1057. Although SB 1057 targets the shareholder proposal process, SB 29 (now set forth in Texas Business Organizations Code Sections 21.419, 21.552, 21.218 and 2.116) restructures the entire legal relationship between shareholders and Texas corporations.
Section 21.419 codifies a strong statutory version of the business judgment rule for Texas corporations that are publicly traded or elect to be governed by the provision in their governing documents. Under the amendments, directors and officers of covered corporations are presumed to have acted in good faith, on an informed basis and in the company’s best interests. A shareholder challenging a board decision bears the burden of rebutting each of those presumptions and then proving that the conduct at issue involved fraud, intentional misconduct, an ultra vires act or a knowing violation of law. That standard is materially more protective of management than the rules that govern fiduciary duty claims in most other jurisdictions. The result is that it will be harder to hold directors making self-interested or grossly negligent decisions accountable than it would be elsewhere.
Section 21.552 governs derivative suit standing. It allows a Texas corporation that is either publicly traded or has opted into the business judgment rule, and that has 500 or more shareholders, to require a shareholder to hold up to 3 percent of outstanding shares before bringing a derivative suit. Derivative suits are one of the primary mechanisms through which shareholders can hold directors and officers legally accountable for breaches of fiduciary duty. Raising the threshold to 3 percent at a company like ExxonMobil means that only a handful of the world’s largest institutional investors would have standing to bring such a claim. For everyone else, the courthouse door is effectively closed.
Yet even those few institutions almost never walk through it. The Big Three (BlackRock, State Street and Vanguard) have brought derivative suits on behalf of portfolio companies only twice in the historical record. In both instances, BlackRock was acting to protect its own investment, not to vindicate any broader governance interest. When the only shareholders with standing are institutions that almost never use it, a 3 percent threshold does not merely raise the bar for shareholder litigation. It eliminates the oversight mechanism entirely.
Several Texas companies have already adopted this provision. Tesla amended its bylaws to impose the 3 percent threshold the day after SB 29 was signed into law, at a time when a 3 percent stake in the company was worth approximately $30 billion. Southwest Airlines followed two days later, and a handful of others, including HeartSciences, Dillard’s, Centerpoint Energy and Legacy Housing Corporation, have since done the same. And just this week, TTEC Holdings filed its proxy statement with the SEC proposing to reincorporate in Texas and adopt the 3 percent derivative threshold.
The real-world consequences are already playing out in court. Just this month, in the first meaningful judicial enforcement of Section 21.552’s ownership threshold, a federal judge in Dallas dismissed a derivative suit against Southwest’s board brought by a shareholder who owned 100 shares, applying the amended bylaws to bar the claim even though the shareholder’s demand letter predated the amendment. The court held that a derivative proceeding commences only upon filing, not upon delivery of a demand.
Section 21.218 curtails inspection rights for publicly traded Texas corporations or corporations that have elected to be governed under the business judgment rule described above. Shareholders of these corporations may no longer demand access to e-mails, text messages, “similar electronic communications” or social media communications as part of a records inspection request, unless those communications directly effectuate a corporate action. When a shareholder suspects wrongdoing and wants documentary evidence, internal communications are often the most probative source of information about what the board actually knew and when. Section 21.218 takes that avenue away. Furthermore, corporations may refuse inspection demands altogether from shareholders who are involved in ongoing litigation or are expected to initiate derivative proceedings. Thus, the law authorizes companies to withhold records from the shareholders with the greatest need for them.
Under Section 2.116, also expressly permits corporations to include jury trial waivers in their governing documents for “internal entity claims,” including derivative suits. A shareholder who buys stock after a waiver is in place is deemed to have waived jury rights simply by virtue of the purchase. Under Section 2.115, corporations may also designate Texas as the exclusive forum for all internal entity claims, keeping any governance litigation out of jurisdictions that might apply more shareholder-friendly standards.
The Opt-In Belongs to the Board, Not Shareholders
Here is the critical point that every lawyer advising on a Texas reincorporation must understand, and one I have examined in a recent Bloomberg Law commentary: None of these restrictions require a shareholder vote to activate. Texas has built an opt-in system, but the opt-in authority belongs to the board, not the shareholders. Under Texas law, a board of directors can amend the company’s bylaws to activate SB 1057’s proposal thresholds and SB 29’s derivative suit restrictions unilaterally. The only procedural requirement is notice in a proxy statement. Shareholder approval is not required.
ExxonMobil has said it is not adopting provisions that “weaken shareholder rights” as part of this reincorporation. Although that statement is accurate as a description of today, it is meaningless as a governance commitment for tomorrow. Nothing in the Texas charter ExxonMobil is proposing prevents the board from activating these provisions the day after reincorporation is complete. Shareholders voting yes are not voting on a fixed set of governance terms. They are voting to hand the board the legal authority to set those terms later, without coming back to shareholders for approval.
The contrast with other reincorporating companies is instructive. Arcbest Corp., a freight transportation company in the midst of moving its legal home to Texas, took the step of including an affirmative opt-out in its Texas charter, expressly foreclosing the board’s ability to activate the restrictive provisions. That is what a genuine commitment to shareholder rights looks like in a Texas reincorporation. ExxonMobil is choosing a different path.
ExxonMobil’s Retail Voting Program
The governance story at ExxonMobil does not stop with SB 1057 and SB 29. Last September, the SEC approved a first-of-its-kind retail investor voting program that ExxonMobil created and now operates. Under the program, retail shareholders can enroll in a standing instruction to automatically cast their votes in alignment with the board on every future matter, excluding contested director elections and mergers and acquisitions. ExxonMobil’s retail investor base accounts for roughly 40 percent of the company’s outstanding shares. That is a substantial bloc. A standing instruction that defaults this group to the board’s position on every proposal converts what should be an independent shareholder voice into a permanent management ally.
ExxonMobil makes clear that shareholders may opt out. However, the program is like a subscription service that you forget to cancel despite receiving the bill each year. The opt-in is easy, the annual reminder is easy to ignore, and the behavioral default does the rest. Shareholders can opt out, but behavioral research on defaults makes clear that most will not.
The history behind this program matters. In 2021, a hedge fund holding less than one quarter of one percent of ExxonMobil’s shares succeeded in electing three directors to the board by rallying large institutional investors around climate-related governance concerns. That result prompted the company to build a direct channel to its retail shareholder base and give them a mechanism to vote with management automatically. The retail voting program was framed publicly as a way to amplify the voices of everyday investors. But the practical architecture runs in the opposite direction.
The Leopard Paradigm: Coordinated Governance Strategy
The program and the Texas reincorporation form a coherent and coordinated governance strategy aimed at consolidating management control. In Corporate Disenfranchisement, forthcoming in the UC Irvine Law Review, Sergio Alberto Gramitto Ricci and I call this the Leopard Paradigm: corporate elites adapt formal governance structures so that everything appears to change while substantive power remains exactly where it was. New voting programs, new state of incorporation, new statutory frameworks. The formal architecture of shareholder participation is preserved. The practical capacity of ordinary shareholders to exercise it is not.
Although ExxonMobil is perhaps the most prominent example, the broader trend deserves serious attention. A growing number of companies are evaluating Texas incorporation as an alternative to Delaware, drawn by the state’s explicit effort to build a business-friendly legal environment. But a legal environment that is friendly to business is not necessarily friendly to the investors who own those businesses. CII has warned against diminishing investor rights and protections relating to reincorporation. In March 2025, CII’s U.S. Asset Owner Members approved an amendment to its reincorporation policy (Policy 1.8) stating that “[c]ompanies should not reincorporate in jurisdictions where corporate governance structures are less robust than their current jurisdiction” and should not adopt governing documents that “diminish investor rights and protections in connection with reincorporation.” The 2025 amendments to the Texas Business Organizations Code tilt the governance balance heavily in management’s favor, and the opt-in architecture means that balance can shift further at any time, at the board’s sole discretion.
Implications for General Counsel
For general counsel advising on reincorporation decisions, the threshold question is no longer simply whether Texas is operationally convenient or economically attractive. It is what governance commitments the company is willing to make as part of the transaction. A Texas charter that affirmatively opts out of SB 1057’s proposal thresholds and SB 29’s suite of derivative suit restrictions tells shareholders something meaningful about how the board views its relationship with investors. A charter that preserves full board discretion to activate those provisions later tells them something different. Moreover, proxy advisory firms and institutional investors are paying close attention to this distinction, and the reputational and relationship costs of a governance-unfriendly charter structure are real. Companies that opt into SB 1057 and SB 29 should expect to face heightened shareholder activism through other channels: vote-no campaigns targeting individual directors, coordinated media campaigns and consumer boycotts for companies with retail-facing brands and organized protests at in-person annual meetings. When shareholders lose formal governance mechanisms, they do not simply go quiet. They find other ways to make themselves heard.
The Federal Dimension
There is also a federal dimension that compounds the concern. SEC Chair Paul Atkins declared in October 2025 that he views social and environmental shareholder proposals as inappropriate “politicization” of annual meetings, and the agency withdrew from its gatekeeping role under Rule 14a-8 in November 2025, announcing it would no longer issue substantive no-action letters on most proposal exclusions.
Amendments to Rule 14a-8 are expected to be proposed as early as April 2026. If the federal framework for shareholder proposals is gutted, the damage to shareholder voice will already be severe. SB 1057’s state-level thresholds would then serve as a redundant backstop, ensuring that even any future federal restoration of proposal rights could be blocked at the state level. Meanwhile SB 29’s restrictions on derivative suits, inspection rights and jury trial waivers operate on an entirely separate track and compound the loss regardless of what happens federally.
Conclusion
The core issue in the ExxonMobil reincorporation is straightforward, even if the legal mechanics are not. Shareholders are being asked to approve a transaction that gives their board the authority to restrict their own governance rights later, without their consent. The company has made no binding commitment not to use that authority. Meanwhile, the retail voting program is already in place, collecting standing instructions ahead of the May 27 annual meeting — before shareholders have even voted on the reincorporation that would make those tools available.
The ExxonMobil reincorporation is the Leopard Paradigm in action. A client that reincorporates in Texas without affirmatively opting out of SB 1057 and SB 29 is not simply choosing a new state of incorporation. Everything appears to change. The board’s authority does not.
Christina Sautter, associate dean for research and professor of law at SMU’s Dedman School of Law, studies corporate governance and shareholder rights.
