Jun 8, 2024 - Business

A Texas brand of business mojo

Illustration of a globe with geometric shapes with money and map overlays

Illustration: Natalie Peeples/Axios

An upstart stock exchange hopes to challenge Wall Street's duopoly. Perhaps unsurprisingly, it's based in Texas.

Why it matters: Texas is seizing the zeitgeist and emerging as a hub for the current corporate backlash against ESG (environmental, social and governance) investing principles.

The big picture: Texas has long fashioned itself as pro-business, and now a network of financial and legal infrastructure is cropping up to provide alternatives to the incumbent systems of New York and Delaware.

A few examples:

Business courts: A bill signed by Gov. Greg Abbott last year created a system of business-focused courts similar to those in Delaware and other states. The new court system is due to start hearing cases in September (though applications for judicial openings have been scant).

  • At least one vocal Texas resident — Elon Musk — has been very enthusiastic about domiciling his companies in the Lone Star State, especially after the Delaware Chancery court invalidated his Tesla pay package this year.

5th Circuit Court: The federal appeals court, whose jurisdiction includes Texas, is known for rulings that tend to skew conservative. Plaintiffs are challenging companies' climate change investments, SEC rules and the Nasdaq's board diversity rule in the circuit's appeals court — and making some inroads.

The Texas Stock Exchange: The TXSE, led by CEO James Lee, announced this week that it plans to launch a more company-friendly stock exchange based in Dallas as an alternative to the NYSE and Nasdaq.

  • The exchange's pitch to investors leaned heavily on criticizing the Nasdaq's board diversity rule, according to the WSJ. (A TXSE spokesperson denied this to the WSJ.)
  • The TXSE has already raised about $120 million from BlackRock, Citadel Securities and others.

What they're saying: "BlackRock is proud to be a founding investor in the Texas Stock Exchange to increase liquidity and improve market efficiency.… TXSE is well positioned to capitalize on the Texas economy," the asset manager said in a statement to Axios.

Between the lines: Texas' business court plan is as much about internal state politics as it is about creating an alternative to Delaware, says Tulane University law professor Ann Lipton.

  • Texas elects its judges, and some municipalities have picked relatively liberal judges for their districts.
  • The business judges, however, will be appointed by the governor — and only for two-year terms — and those in the new appeals court will be chosen in statewide elections.
  • As a result, Texas companies that can lobby their legislature and influence the governor could gain a more favorable environment from this new system.

Fun fact: Although Texas had the most companies on the Fortune 500 list (which is based on annual revenue) for the last couple of years, California took the top spot once again this week.

  • Texas is now tied for second … with New York.

What to watch: Texas is capitalizing on the vibe shift, but will that be enough to make a dent in the entrenched corporate strongholds on the coasts?

Go deeper: The Texas Stock Exchange has its work cut out for it

Go deeper