Texas House Bill HB988

Texas 2025 - 89th Regular

• Filed: 11/12/24

Caption

Relating to the duty of the board of directors of a corporation to maximize the value of the corporation's shares.

Impact

If enacted, HB988 would have significant implications for corporate governance within Texas. By formally establishing the priority of shareholder value, this legislation would compel directors to make decisions that align with maximizing share prices. This shift is likely to influence corporate behavior and strategic planning, as boards may feel pressured to focus solely on short-term financial returns, potentially at the expense of broader stakeholder interests or long-term business sustainability.

Summary

House Bill 988 aims to amend the Texas Business Organizations Code by establishing a duty for the board of directors of a corporation to prioritize the maximization of the value of the corporation's shares. With the proposed addition of Subsection (f) to Section 21.401, the bill asserts that directors could breach their fiduciary duty if they prioritize any consideration over increasing shareholder value. This change highlights the growing emphasis on shareholder interests in corporate governance decisions and reinforces the legal obligation of directors to act in ways that increase share value for their stakeholders.

Contention

The bill may generate considerable discussion and legislative contention, particularly around the balance between shareholder interests and other stakeholder considerations such as employee welfare, community engagement, and environmental responsibility. Critics might argue that prioritizing shareholder value overly simplifies the complexities of corporate responsibilities and could discourage companies from considering the wider social implications of their business practices. Conversely, supporters might view it as a necessary strategy to enhance accountability within corporate boards and drive financial performance.

Texas Constitutional Statutes Affected

Business Organizations Code

• Chapter 21. For-profit Corporations
  • Section: New Section