Texas Corporate Reforms Silence Retail Shareholders—By Design

A recent Bloomberg Law commentary argued that amendments to the Texas Business Organizations Code represent a victory for shareholder democracy, but the opposite is true.

By erecting barriers to shareholder litigation and proposals and codifying near-absolute deference to board decisions, Texas has enshrined into law what critics have long identified as corporate America’s central fiction: that shareholders exercise meaningful control over corporations.

In theory, shareholders can vote, bring proposals, and sue. Voting matters, but without proposals, shareholders can’t press for governance changes or raise concerns with management and fellow shareholders.

Without litigation, they have no recourse for misconduct. Texas is restricting proposals and litigation for retail shareholders under the guise of democracy.

Shareholder democracy rhetoric originated in the 1920s as a Wall Street marketing tool designed to attract retail investors while helping management resist government regulation. As co-authors and I document in a forthcoming article, this rhetoric is pernicious. A century later, we are still being sold the same fiction that is now wrapped in the language of reform.

Consider Texas’ new 3% ownership threshold required to bring derivative claims against directors, framed as a minor filter against frivolous litigation. In practice, it is a fortress wall and the antithesis of so-called shareholder democracy.

According to the Federal Reserve’s most recent Survey of Consumer Finances, only 21% of US families directly own stock—the form of ownership that confers standing to bring claims. The median value of directly held stock is just $15,000. Meeting a 3% threshold in even a mid-sized public company would require tens of millions of dollars in concentrated holdings.

This is an impossibility for most direct retail shareholders. When advocates claim small shareholders can work together to reach the threshold, they ignore the coordination costs that make such collective action largely theoretical.

The recent commentary cites Tesla Inc.’s 75% shareholder approval of ownership thresholds as validation. But Tesla enjoys a cultlike retail following, and none of those very shareholders who voted for the threshold can meet it themselves.

When the disenfranchised ratify their own disenfranchisement, that’s not democracy. It’s legitimation secured by controlling the narrative. Shareholders followed management’s lead, accepted the “frivolous litigation” frame, and approved rules eliminating their own remedies.

Elites don’t just erect structural barriers, they get the excluded to ratify their own exclusion—a dynamic I call corporate disenfranchisement.

Texas’ shareholder proposal restrictions are even more draconian. Under Texas SB 1057, shareholders must hold the lesser of $1 million in market value or 3% of the corporation’s voting shares, maintain that position for six months, and solicit support from holders representing 67% of voting power before submitting a proposal. According to Georgeson’s analysis, approximately 9% of shareholder proposals would have been excluded from Texas-based companies under these criteria. These are barriers designed to silence minority shareholders and not just filters against frivolous proposals.

Dismissing the independent shareholders who file proposals, and deriding them as “corporate gadflies” and “activists” with misaligned interests, ignores history. These persistent shareholders have driven corporate governance best practices such as annual director elections and majority voting, environmental disclosures, and executive compensation transparency—changes that eventually became mainstream.

Individual shareholders filing repeated proposals may irritate management, but they have often identified governance failures before institutional investors and regulators caught on. Dismissing them rewrites a more complex history.

These state-level restrictions are now finding federal reinforcement relenting to years of corporate lobbying pressure. In November 2025, the SEC announced it would no longer provide substantive responses to most no-action requests under Rule 14a-8. Under that rule governing shareholder proposals, companies can ask the SEC for an assurance that the agency won’t seek enforcement when they choose not to include a shareholder proposal in their proxy materials.

Commissioner Caroline Crenshaw called this new policy “an act of hostility toward shareholders.” But the SEC will still consider exclusion requests based on state law. Chair Paul Atkins has specifically pointed to Texas’ restrictions as valid grounds. This means companies that opt in to SB 1057 could use it to block proposals at the federal level. What Texas enacted, the SEC now appears prepared to enforce.

How fiduciary duties actually work have also been mischaracterized. The business judgment rule already protects directors from judicial second-guessing of ordinary decisions—that’s not controversial.

Texas has gone further. Now shareholders of Texas companies that elect to be governed by this provision can only rebut the business judgment presumption by proving fraud, intentional misconduct, an ultra vires act, or knowing violation of law. By excluding gross negligence, Texas has effectively eliminated the duty of care.

While some may celebrate foreclosing individual shareholders from exercising their voices, we should note who is celebrating. The recent commentary is on behalf of the Alliance for Corporate Excellence, an advocacy group formed specifically to lobby for amendments to the Texas Business Code. The alliance partnered with Texans for Lawsuit Reform (a tort reform group) and the Texas Stock Exchange (which has a direct financial interest in Texas becoming a more attractive incorporation jurisdiction).

The amendments this trio has advocated for aren’t shareholder democracy; they’re corporate autocracy dressed in democratic language. Texas hasn’t built up thriving accountability. Accountability is being systematically dismantled while we are told to applaud.

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.

Author Information

Christina M. Sautter is the associate dean for research and a professor of law at SMU Dedman School of Law and is the co-founder of the Center for Retail Investors & Corporate Inclusion.

Write for Us: Author Guidelines