Relating to the burden of proof in certain derivative proceedings.
The impact of HB 872 on state law is notable as it shifts the responsibility of proof from the shareholder to the corporation in cases where ESG factors are questioned. This aligns Texas corporate law more closely with growing trends in corporate governance that emphasize accountability and transparency regarding social and environmental issues. By ensuring that corporations must actively demonstrate the legitimacy of their actions in light of these criteria, the bill seeks to enhance the protection of shareholder interests and promote responsible corporate behavior in Texas.
House Bill 872 addresses the burden of proof in derivative proceedings initiated by shareholders. Specifically, the bill modifies the Business Organizations Code by adding a new section that stipulates the burden of proof lies with the corporation when shareholders allege wrongful conduct concerning the consideration of environmental, social, and governance (ESG) criteria. This legal alteration is significant as it compels corporations to justify their actions by demonstrating that they were in the best interests of the corporation, particularly when making decisions that may impact ESG considerations.
While the bill promotes shareholder rights and corporate responsibility, it may also open the door to increased litigation against corporations. Critics may argue that by increasing the burden on companies, the law could lead to a surge in derivative lawsuits that could be both costly and disruptive to corporate management. Proponents of the bill, however, assert that it will ultimately lead to better corporate practices and more responsible decision-making by aligning the interests of shareholders with broader societal concerns.
Business Organizations Code