Most “DExit” activity to-date has involved controlled companies. But as recapped in this Vinson & Elkins blog, three widely held public companies have proposed reincorporating to Texas this year. They each took different approaches to governance structures, and experienced varied voting outcomes. Here’s an excerpt (names redacted here but available in V&E’s blog):

While all three companies extolled their nexus to Texas (including operational and financial links) and lack of connection to Delaware (characterized as a “historical footnote” by Company A) in their proxy statements, only Company A’s and Company B’s reincorporation proposals prevailed. These divergent outcomes underscore that the path to Texas must be carefully tailored to each company’s shareholder base.

* Company A: Anticipating concerns that a reincorporation would be perceived to weaken shareholder rights, Company A emphasized in its proxy materials that it declined to adopt certain TBOC provisions—specifically the derivative litigation ownership threshold, the shareholder proposal ownership threshold, and the jury trial waiver. However, Company A stopped short of committing not to adopt such provisions in the future, which could be accomplished by board-only bylaw amendments without a shareholder vote under Texas law. Company A also filed multiple proxy supplements to directly refute ISS and Glass Lewis claims that the move would harm shareholders’ rights and to further explain differences in Texas’s legal structure. In supplemental proxies, Company A also responded to concerns raised in a filing by New York City Comptroller Mark Levine that a Texas move “sets the stage for the potential erosion of shareholder rights under Texas state law.”

* Company B: While Company B similarly did not adopt ownership thresholds for initiating derivative litigation or bringing shareholder proposals, it went a step further than Company A by explicitly opting out of those provisions in its Texas charter. Accordingly, future adoption of either provision would require shareholder approval (rather than board-only action). ISS has called this approach a “best practice.”

* Company C: Company C implemented a different approach altogether, proposing Texas governing documents that included a one-percent derivative litigation ownership threshold (significantly below the three-percent limit) and seeking a shareholder advisory vote prior to adopting the shareholder proposal ownership threshold.  Both measures, along with the reincorporation proposal itself, failed to win shareholder approval.

In addition to wanting to move to Texas, the companies had at least one thing in common: Each of them had to overcome proxy advisor opposition to their reincorporation proposal. The blog explains:

As with most other recent Texas reincorporation proposals, ISS and Glass Lewis recommended against all three companies’ redomestication proposals, citing harm to shareholder rights. ISS, in particular, warned that a Texas reincorporation would make it more difficult for shareholders to hold directors and officers accountable.

During the course of its proxy season, Company A pushed back aggressively, filing proxy supplements contending that ISS’s and Glass Lewis’s respective recommendations were based on “flawed analysis,” “speculation” and “immaterial factors,” and that the proxy advisors failed to disclose their “obvious” conflicts of interest resulting from their ongoing legal battle with the Texas Attorney General.[5]

Company A also ran a widespread media campaign, which included running ads in major newspapers, like the Wall Street Journal, to support the reincorporation. By contrast, Company B and Company C did not publicly refute the proxy advisor recommendations prior to their shareholder meetings. Following its failed vote, Company C cited ISS’s and Glass Lewis’s “ill-informed influence and recommendation against the firm re-domiciling in its home state” as a significant factor contributing to the proposal’s rejection by shareholders.

ISS and Glass Lewis have recommended against the vast majority of Texas reincorporation proposals, despite the case-by-case analysis described in their voting policies.

Delaware currently remains the state of choice for the vast majority of public companies, so these reincorporation proposals and decisions are still relatively novel and at this point there isn’t a well-developed, standardized playbook for a winning proposal. That said, companies can learn from this year’s outcomes – especially when it comes to the timeline and planning. As the V&E team notes, each of the three companies submitting Texas reincorporation proposals this year spent a lot of time teeing up the ask – 7 months or more. So, if you’re considering a move in 2027, now might be the time to start discussing the strategy.

– Liz Dunshee