Texas Raising the Bar: At Stake for Shareholder Voice and Democracy
The recent corporate-law reforms in Texas are not just a technical tweak, raising the bar. They reframe who gets to put business before shareholders and who can credibly challenge management.
Texas Business Organizations Code § 21.373 (adopted via S.B. 1057, effective Sept. 1, 2025) set out a regime under which certain “nationally listed corporations” may require that a shareholder (or group) satisfy steep conditions to submit a shareholder proposal for approval at a shareholders’ meeting under Texas law—namely:
- $1 million in market value or 3% of voting shares,
- six months of continuous ownership (and through the meeting), and
- solicitation of holders representing at least 67% of the voting power entitled to vote on the proposal. (Jackson Walker)
Two clarifications are essential:
- The 67% element is framed as a solicitation obligation, not as a requirement to obtain 67% “yes” votes in advance. It raises cost and logistical barriers. It does not literally demand pre-assembled supermajority support.
- These requirements address state-law. They do not amend federal Rule 14a-8.
But the point of § 21.373 is not subtle. It makes shareholder-submitted matters expensive, time-consuming, and—practically speaking—more accessible to the largest holders and professional activists than to retail “gadflies” or even socially responsible, religious-based funds.
The Big Four have never used shareholder proposals or proxy contests to target their portfolio companies. Instead, they exert influence by voting, behind‑the‑scenes engagement, and support (or opposition) to other filers and activists. Large managers like the Big Four often run 401(k) and pension plans for the same companies whose stock they vote, so aggressive activism against management can jeopardize lucrative business relationships. Instead, they exert influence by voting, behind‑the‑scenes engagement, and support (or opposition) to other filers and activists. Such passivity does little to foster innovation. That leaves activists.
Not Just a Boardroom – Music for a Democratic Corporate Governance
Washington: Rule 14a-8 Under Sustained Attack
At the federal level, Rule 14a-8 continues to provide the low-cost agenda-setting channel that has shaped U.S. corporate governance for decades. Yet, that channel is now under direct pressure from at least three developments heading in the same direction:
Raising the Bar on Proper Subjects
SEC Chair Paul Atkins publicly advanced an argument at the Weinberg Center in Delaware that could take a wrecking ball to the modern proposal ecosystem. Even precatory (nonbinding) shareholder proposals may not be a “proper subject” for shareholder action under Delaware law unless the company’s governing documents create that right. He told the audience of attorneys that he had “high confidence” the SEC staff would honor a Delaware law opinion stating that precatory proposals are not a proper subject for shareholder action and can be excluded under Rule 14a-8(i)(1). (Atkins, SEC)
Companies to Police Themselves
Second, soon after that speech, the SEC’s Division of Corporation Finance announced it would not issue substantive no‑action responses to companies seeking to exclude shareholder proposals under Rule 14a‑8, except for exclusions under Rule 14a‑8(i)(1) involving state‑law or proper‑subject issues. This temporary shift was reportedly prompted by resource limits after the government shutdown and a heavy filing workload. Companies must still file Rule 14a‑8(j) notifications 80 days before their proxy filing, but are not required to seek staff views. If a company still wants a response, it must include an unqualified statement that it has a reasonable basis for exclusion, in which case the Division may issue a non‑objection letter without assessing the merits. (CorpFin)
Closing the Door
Third, the “repeal, don’t mend” position is moving from the margins toward the center of debate by elites and their defenders. On February 16, 2026, former SEC Commissioner Joseph Grundfest argued in the Wall Street Journal that Rule 14a-8 should be repealed outright. He claims it lacks a statutory foundation, intrudes into state internal affairs, and risks compelled speech issues, especially in a post-Loper Bright world where courts may be less deferential to agencies. (The Wall Street Journal)
Taken together, these moves create a plausible near-term pathway. Shrink Rule 14a-8 by state-law “proper subject” challenges. Then, argue that the whole system should be replaced with “private ordering.” Texas has already built a ready-made template for what “private ordering” can look like: $1 million/3%, six months, and a 67% solicitation burden, as discussed above.
Collision Course: § 21.373 as an i(1) No-action Strategy
The most important practical question isn’t academic. It’s procedural: how will issuers and the SEC Staff treat a proposal that satisfies Rule 14a-8 but not Texas § 21.373?
Law-firm commentary has been explicit that § 21.373 is likely designed to tee up this conflict. Companies may attempt to use state-law restrictions as a foundation for exclusion arguments. (Jackson Walker)
Historically, the SEC treated Rule 14a-8 as a federal inclusion mechanism subject to enumerated exclusions, with state law informing certain boundaries (e.g., illegality, improper subject). Atkins’s speech—plus subsequent practice notes and client alerts—signals a more receptive environment for i(1) challenges, especially those backed by counsel opinions.
If the SEC Staff begins honoring broad i(1) theories—particularly those that convert “state law permits restrictions” into “federal inclusion must yield”—the economic gating of shareholder voice could accelerate quickly, with Texas functioning as a proof-of-concept jurisdiction.
The “Governance Facilitator” Ecosystem Would be Lost
My 2021 post on The Giant Shadow of Corporate Gadflies (reviewing Nili & Kastiel) made a point that the policy debate still routinely misses: individuals who repeatedly file proposals often function as governance facilitators—translating general principles into company-specific reforms, testing new ideas, and catalyzing mainstream adoption. The academic work itself acknowledges that “a handful of gadflies” account for a large share of proposals and that their governance proposals tend to receive substantial support.
Bebchuk, for example, treats gadflies as important democratic catalysts whose ability to place proposals on the ballot is essential to shareholder empowerment.
If Texas-style gating spreads (and/or Rule 14a-8 is narrowed or repealed), several less-visible but crucial functions are at risk:
1) Agenda-setting by diversified owners (not just concentrated capital). Rule 14a-8 is one of the few scalable tools that lets small holders put an issue on the ballot without first assembling a war chest. Replacing it with high-cost solicitation requirements predictably shifts agenda-setting toward large institutions and professional activists.
2) The negotiation channel that never shows up in datasets. A major portion of the proposal’s “value” comes from withdrawals and negotiated reforms—often more efficiently than litigation or other forms of contest. For example, I often reach agreements on over a third of my proposals. I even have companies ask me, “What’s next?” so they can consider if I even need to bother filing. That quiet settlement pipeline shrinks if retail proponents cannot credibly file in the first place.
3) The innovation pipeline. New governance norms often start “idiosyncratic” and later become standard. Nili & Kastiel’s own framing of gadflies as market-wide catalysts implicitly describes an R&D function; throttling it narrows experimentation.
4) Civic participation in corporate life. The shareholder proposal mechanism is one of the last widely available “civic” channels inside the corporate state—imperfect, but real.
In other words, what disappears is not merely “noise.” It is a set of low-cost accountability and norm-setting pathways that compensate for institutional passivity. Consider the well-known reluctance of the largest index managers to file proposals, even when their own voting guidelines support the reforms. That “void” is central to the need for gadflies and for socially responsible investors to consider externalities.
Right to Cure
My right to cure bylaw proposals illustrates why process rights matter more as enforcement narrows, illustrating the practical stakes of this transition.
In a Delaware-centric world, a board that weaponizes advance-notice technicalities risks equitable scrutiny. In a Texas world where (a) state-law shareholder-submitted matters can be conditioned on high thresholds and a 67% solicitation obligation, and (b) the SEC is openly inviting state-law “proper subject” exclusions, procedural fairness must be built into the bylaws up front. After-the-fact review will be harder, especially for retail holders who have traditionally been the most innovative.
That is the deeper pattern: as ex post accountability channels get gated, ex ante governance architecture becomes the main line of defense.
Conclusion: Raising the Bar or Closing the Door Impacts American Democracy, Not Just Corporate Governance
It is tempting to treat all of this as niche proxy plumbing. It isn’t. Texas raises the cost of shareholder participation while SEC leadership and influential commentators question the legitimacy of Rule 14a-8 itself. The direction of travel implicates democratic resilience in at least three ways.
1) Concentrated economic power and concentrated political power reinforce each other
Political-economy scholarship on corporate governance emphasizes that corporate structures and political institutions co-evolve: governance arrangements inside firms are both products of politics and contributors to future political outcomes. Mark Roe’s classic framing is blunt: to understand corporate authority, you must attend to politics—because power inside firms and power in government push on each other over time.
For example, in Corporate Governance and Its Political Economy, Mark Roe argues that corporate governance and political institutions co‑evolve, insisting that “to fully understand governance and authority in the large corporation, one must attend to politics” because “politics can and does determine core structures of the large corporation.” Roe emphasizes that causation runs in both directions: “a simple map from politics to economics to corporate governance cannot be written because causation is bidirectional,” such that “the present corporate governance structure is the consequence of past politics and is also a cause of future politics and economic institutions.” In his framing, corporate authority is inseparable from political power because “the principal players inside the firm… can themselves project power into the polity,” creating a dynamic in which governance arrangements are simultaneously products of political forces and contributors to future political outcomes. (laweconcenter.law.harvard.edu)
Meanwhile, modern work on economic concentration warns of “dual threats” to democracy: concentrated private power can erode democratic processes directly (through influence) and becomes a tool in democratic backsliding (by making capture easier). (ProMarket) If shareholder voice mechanisms are weakened, constraints on managerial and concentrated-owner power soften. This is precisely what scholars warn can destabilize democratic institutions: concentrated economic power.
2) Workplace governance spills into civic governance
Empirical evidence from Germany suggests “workplace democracy” has political spillovers: institutions like works councils are associated with increased political interest and participation. (Wiley Online Library)
From Carole Pateman’s Participation and Democratic Theory, I learned long ago that meaningful participation by the masses is essential in developing individuals with political competence, autonomy, and a sense of civic responsibility. The workplace is the most formative institution for lifelong learning. Some form of industrial democracy is necessary if we want democracy to be robust in everyday life, not just in the few minutes it takes to vote in political elections.
The inference for the U.S. corporate context is uncomfortable but important. When major institutions systematically reduce voice and normalize “management decides,” it doesn’t stay inside the firm. It shapes expectations about voice, participation, and accountability beyond the workplace.
3) Corporations increasingly function as political institutions—so internal autocracy has public consequences
As corporations play a more overt role in shaping public agendas, governance decisions inside firms increasingly operate like political decisions, but without democratic procedures. Contemporary commentary on the “overstory” of business and politics highlights the risks and opportunities created by corporations’ expanding political footprint.
Political choices are increasingly made by a smaller and more insulated managerial elite. Shareholders continue to lose accessible mechanisms to raise issues, demand explanations, and force deliberation. As a consequence, “democracy” without democratic procedures migrates from private boardrooms back to public institutions.
That is the democratic cost of the current drift: not merely fewer proposals, but fewer venues where dispersed owners can practice collective self-governance—and fewer counterweights against concentrated corporate power that can, over time, become concentrated political power.
The shareholder proposal mechanism has never been perfect. But the system I described in 2021—the ecosystem in which gadflies, institutions, proxy advisors, and negotiated withdrawals together produce a steady ratchet toward baseline governance reforms—has functioned as a low-cost, widely distributed accountability infrastructure.
Texas’s thresholds and solicitation burdens, combined with a federal turn toward state-law exclusion theories and outright repeal arguments, point toward a world where shareholder voice is increasingly reserved for those with scale. Academic research gives us a sober warning about that trajectory: autocratic governance structures, once normalized in the economy, do not remain quarantined from politics. They become part of the soil in which democratic erosion can grow.
If this is where Texas and the SEC are heading, the key question for investors—and for citizens—becomes the one that Rule 14a-8 quietly answered for decades: Will corporate governance remain a participatory institution of American capitalism, or become a gated system of private ordering—by and for the already powerful?
Addendum: Atkins in Dallas — Texas, as the Model for Raising the Bar
SEC Chair Paul Atkins’ recent remarks at Texas A&M sharpen the trajectory described above. He framed Texas as a deliberate alternative to Delaware for companies seeking “less politicization, abusive litigation, and overall drama”—explicitly linking state competition to shareholder proposals and litigation reform.
Beyond § 21.373’s ownership and solicitation thresholds, Atkins praised Texas Senate Bill 29 for limiting fee awards in disclosure-only suits and highlighted new authority for Texas exclusive-forum provisions and jury-trial waivers in internal-affairs claims. He even floated fee shifting (“English Rule”) as a possible next step. The message is broader than proposals: Texas is redesigning the entire shareholder-enforcement ecosystem.
Most consequentially, Atkins emphasized the SEC’s recent stance that mandatory arbitration provisions are not inherently inconsistent with federal securities laws and asked, pointedly, “What will Texas do?” If Texas embraces arbitration for corporate disputes, accountability would move further from public courts into private forums—raising the stakes for retail shareholders already facing higher state-law thresholds.
He closed by signaling openness to further Texas reforms next session. Combined with the SEC’s increasing reliance on state-law “proper subject” exclusions, the Dallas remarks suggest that Texas is not just experimenting. Atkins encourages Texas to position itself as the blueprint for a more economically gated model of shareholder voice.
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