Relocation, relocation, relocation
Springtime migrations aren’t just for birds. Last week, ExxonMobil, a Fortune 10 company, decided to leave its longtime corporate domicile of high-tax New Jersey for business-friendly Texas.
For decades, a handful of states such as Delaware, with its hospitable corporate law, and California, Illinois, and New York, with their capital resources, held too strong a grip on the American corporate engine. These states have too often treated successful businesses as ATMs to underwrite the steep costs of progressive governance. But businesses are now increasingly confronting the reality: High taxes and heavy regulation in left-wing states are harming innovation, growth, and the economic prospects of the people who live there.
As a result, we are now witnessing a historicmigration, as some of America’s most iconic companies pack their bags and head for the heartland. Companies such as Chevron andCaterpillar didn’t leave their historic homes on a whim. Chevron was incorporated in California for 145 years before moving to Houston. Caterpillar was a mainstay of the Illinois economy for nearly a century before decamping to a Dallas suburb. These companies — combined with ExxonMobil — account for roughly $1.41 trillion in market cap flowing from high-tax states into Texas and other states that have set out to create business-friendly environments.
In a statement, ExxonMobil CEO Darren Woods said, “Texas has made a noticeable effort to embrace the business community. In doing so, it has created a policy and regulatory environment that can allow the company to maximize shareholder value.” All these great American companies left the states they once called home because the benefits of moving outweighed the costs of staying put.
As alluded to above, even the longtime corporate sanctuary of Delaware is no longer safe for business. For years, the state’s Chancery Court was respected and predictable, butrecentrulingshaveshown a clear pivot toward judicial activism. When a court can unilaterally void a shareholder-approved compensation package or make it difficult for boards to ignore the political whims of institutional asset managers, the safe predictability that businesses find so appealing disappears.
Contrast that with the “heartland model” pioneered by Texas, Florida, and Nevada, a return to the basics comprised of three main points:
- Focus on fiduciary duty: These states are doubling down on the principle that a corporation’s sole purpose is to focus on maximizing return for its owners — the shareholders.
- Specialized business courts: Texas’s new business courts and the Texas Stock Exchange provide a sophisticated alternative to the coastal status quo.
- Competitive talent acquisition: By reducing or eliminating state income taxes, these states allow companies to recruit some of the best and the brightest.
The large, high-tax, high-regulation states have been complacent for too long. They have assumed that “their” businesses would never leave. But they were wrong.
Competition between states is forcing a much-needed conversation about what a corporation should actually be. Should a company be a vehicle for social engineering and a piggy bank for state-level overspend, or should it be an engine for American prosperity? Progressive states are beginning to find out the consequences of the approach that they have been taking.
The companies that are leaving their old homes have made their choice. They are choosing states that understand that free markets — not ideological agendas — drive a strong economy. It is time for more leaders to follow these companies’ lead and bring their businesses home to states that still believe in the American dream.