The Biggest D&O Themes of 2026: IPOs, DExit and Mandatory Securities Arbitration

Author: Walker Newell

In the evergreen words of Yogi Berra, "It's tough to make predictions, especially about the future." This bit of wisdom is always true in the world of D&O liability, risk and insurance, but this year feels especially unpredictable.

A raft of companies could choose to DExit — leave Delaware and reincorporate in Nevada, Texas or other jurisdictions. Or we could just see a continued slow shuffle to the exits of a few — mostly founder-controlled — companies, while the lion's share of large-cap public companies and significant new IPOs decide to continue swimming in the Wilmington community pool.

The Securities and Exchange Commission's (SEC's) September 2025 policy statement on mandatory arbitration might transform the world of private securities litigation and D&O insurance, with a large and accelerating number of public companies eliminating shareholders' ability to bring class actions in federal court. Or most companies might decide that the juice (a potential get-out-of-jail-free card for costly class actions) isn't worth the squeeze (court challenges, investor reaction, uncertain benefits, risk of mass arbitration).

Flux will prevail for some time in this space. Points in the corporate governance world are rarely awarded for being on the bleeding edge of change, so key questions boards will want to consider include:

• Will more companies pursue a DExit strategy, reincorporating in Nevada or Texas, where laws appear to permit mandatory arbitration agreements, which Delaware law appears to forbid? If so, will Delaware respond to the threat by making further changes to its statutory framework to allow companies to stay in the state and also get rid of private class action litigation?
• How many companies — and which ones (large cap or microcap? Incumbent public companies or new IPOs?) — will dip their toes into the mandatory arbitration pool?
• What litigation strategy will opponents of mandatory arbitration (e.g., plaintiffs' firms, investor advocacy groups) adopt? Will opponents wait for a high-profile test case, or will we see first-movers facing immediate litigation? Will opponents sue upon the adoption of the agreements, or will the litigation instead proceed only when plaintiffs bring class action litigation and companies try to force that litigation into arbitration?
• Will we begin to see sophisticated, good-faith proposals for a new category of arbitration (new forums, securities-tailored processes and procedures) that would allow shareholders to pursue meaningful claims against public companies under the federal securities laws?
• Can proxy advisory firms and large institutional shareholders stop the mandatory arbitration tide through policy statements and no votes?

There will be more questions than answers for some time, but as 2026 progresses, we should begin to see some significant data points. And in the waning days of 2025, we saw early glimmers of what the new year may hold.

Mandatory securities arbitration: A refresher

The SEC's new policy on mandatory arbitration empowers public companies — in theory — to force disgruntled shareholders into individual arbitration proceedings, thereby eliminating costly federal court class action litigation.

As a practical matter, this type of securities arbitration doesn't really exist today. Further, arbitration can create unique new risks for corporations. Nevertheless, it's reasonable to speculate that if companies can really get rid of federal securities class action cases, losses from securities claims will be much lower over the medium-to-long term.

More specifically, arbitration against a single plaintiff is generally cheaper and more streamlined than litigation against a single plaintiff. But the real hook is that, in theory, an arbitration process wouldn't allow shareholders to band together as a class. The federal court class action mechanism, of course, is the thing that allows plaintiffs' lawyers to gather all potentially harmed shareholders and extract big settlements from public companies in securities cases.

Introducing the new Texas two-step

On December 1, oil drilling company Zion Oil and Gas — publicly traded as a penny stock on the over-the-counter (OTC) markets — announced that it had amended its bylaws to adopt a mandatory securities arbitration provision.

From what I can tell, this makes Zion the first public company to take advantage of the SEC's September policy statement.

How did Zion manage to adopt the provision? A new variation on the Texas two-step:

1. In mid-2025, the company reincorporated from Delaware to Texas, a move that was approved by shareholder vote.
2. In late 2025, management recommended, and the board of directors approved, amending the company's bylaws to adopt a mandatory securities arbitration provision.

The relevant sections of Zion's amended bylaws are a quick read. The two key provisions say:

• The company has a "mandatory arbitration provision for claims under the federal and state securities laws of shareholder claims."
• "The Texas Business Court has jurisdiction to enforce an arbitration agreement, appoint an arbitrator, or review an arbitral award, or in other judicial actions authorized by an arbitration agreement."

Several things stand out to me here:

• In theory, if Zion had stayed in Delaware, it would have been unable to adopt the mandatory arbitration provision. The smart money says that under Section 115(c) of the Delaware General Corporation Law (DGCL), a Delaware corporation is precluded from adopting a mandatory arbitration provision for securities claims. If Zion's amended bylaws stand unchallenged, it will be another arrow in the quiver of DExit advocates.
• Zion's Form 8-K doesn't explain which portions of Texas law allowed it to adopt the provision — or why a shareholder vote was unnecessary. Texas law generally permits the enforcement of valid arbitration agreements. It would be interesting to see some detailed public commentary from Texas lawyers on the validity of arbitration agreements added to bylaws without the need for a shareholder vote.
• Mandatory arbitration is attractive primarily because it allows companies to avoid class actions. Zion's amended bylaws don't appear to include an explicit class action waiver. Could shareholders force class-wide arbitration against Zion? Maybe the company got comfortable with silence based on the Supreme Court's 2019 decision in Lamps Plus v. Varela. In Lamps Plus, the Court held that under "the Federal Arbitration Act, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration." If other companies follow in Zion's footsteps, it'll be interesting to see if they stay silent on class actions or include explicit class waivers.
• According to the amended bylaws, Zion would seek to compel shareholder disputes into arbitration overseen by the Texas Business Court (TBC). The one-year-old TBC has jurisdiction by statute to appoint arbitrators and enforce arbitration awards in securities cases. What this arbitration means in practice is anyone's guess. Who would the arbitrators be? What procedures would govern public company securities arbitration cases? How would standards of liability under the large body of federal court securities doctrine be applied in an arbitration setting?
• In a statement opposing the new mandatory arbitration policy, outgoing SEC Commissioner Carolyn Crenshaw suggested that mandatory securities arbitration agreements could potentially violate the anti-waiver provisions of the federal securities laws. These provisions say that companies can't contract out of complying with the securities laws. It seems likely that an interest group or plaintiffs' firm will try this argument at some point in opposing a mandatory arbitration provision.

Can/will proxy advisors and pension funds stop the tide?

Historically, proxy advisors and large pension funds have been important participants in the push and pull between shareholder rights and protection against frivolous litigation for companies, officers and directors.

How do these actors feel about mandatory securities arbitration? Unsurprisingly, they don't like it.

• The Council of Institutional Investors (CII), a pension fund and trust association representing more than $5 trillion in combined assets under management, has had a policy against mandatory securities arbitration for more than a decade and has been active in the public discourse since the SEC's policy statement.
• In its 2026 Benchmark Policy Guidelines, Glass Lewis states that it "may recommend voting against members of the governance committee" of a board that has adopted mandatory arbitration provisions and "will generally recommend that shareholders vote against any bylaw or charter amendment seeking to adopt a mandatory arbitration provision." The Guidelines do, however, contain a savings clause giving the proxy advisor room to stay silent or recommend voting in favor of mandatory arbitration provisions if the company "(i) provides a compelling argument on why the provision would directly benefit shareholders, (ii) provides evidence of abuse of legal processes, (iii) narrowly tailors such provision to the risks involved, and (iv) maintains a strong record of good corporate governance practices." (In its legacy policies, ISS has a similar provision.)
• In the wake of the SEC policy statement, CalPERS and other major pension funds sent strongly worded letters opposing mandatory securities arbitration agreements.

Confident predictions about the future (not mine)

In a recent Bloomberg article, Doru Gavril, a securities litigation partner at Freshfields, made the following predictions:

"If [mandatory arbitration] provisions are successful, the only individual securities claims will be rare — and only by a few large shareholders in exceptional circumstances.

"There will be challenges to such arbitration provisions over the next few years — all will fail. For years, courts have allowed mandatory individual arbitration of claims that previously were being aggregated, effectively ending them. The elimination of securities class actions by arbitration clauses likely will prompt congressional backlash and adoption of legislation empowering a collective private right of action for securities claims that isn't subject to arbitration. Defense lawyers who decry the current system might then long for the days when the securities class action was a byproduct of judicial rulings alone."

He also predicts that eliminating securities class actions will prompt future congressional backlash and a new statutory framework enshrining shareholder class actions in federal law.

This is some bold fortune-telling! I'm not so confident about what the future holds.

It's certainly true that if public companies have the unfettered ability to get rid of shareholder class action litigation, they may happily do so.

Institutional investor and proxy advisor resistance may mean that it's riskier for companies entering the public markets for the first time via IPOs to adopt mandatory arbitration agreements. The first batch of companies may instead be incumbent public companies with ownership structures that are less sensitive to the views of proxy advisors and institutional capital.

Most new entrants to the public markets will likely prefer to avoid being immediately embroiled in litigation over the validity of a mandatory arbitration agreement. However, if a big, high-profile IPO does choose to incorporate in Nevada or Texas with a mandatory securities arbitration agreement and emerges relatively unscathed, others will surely follow.

There are multiple ways to think about "unscathed" here. If a company prices a successful oversubscribed IPO notwithstanding the presence of a mandatory arbitration provision, that could be considered a success — even if litigation over the provision subsequently follows. Buying an option on potentially getting rid of securities class actions would probably be worth it to many companies — even if they have to pay litigators millions over the course of years of appeals.

If a company ultimately prevails on the merits in district court litigation over mandatory arbitration, this will be a big deal but not the end of the story. The circuits might split and, regardless, one such dispute would probably ultimately find its way to the Supreme Court, which would give a determinative thumbs-up or thumbs-down to the practice.

Any future market and political uncertainty would inject further unpredictability into the equation.

What about Directors and Officers insurance?

In the near term, companies shouldn't expect mandatory arbitration provisions to meaningfully impacted the D&O insurance markets — even if more and more companies begin to adopt these provisions.

Put yourself in the shoes of a D&O insurance underwriter. You're about to take on risk in a new public company D&O insurance program. The company has just adopted a mandatory arbitration agreement and tells underwriters that shareholders can no longer bring securities class actions in federal court. Securities class action settlements are the central category of losses under public company D&O policies. The company argues that, because it's eliminated the possibility of class action settlements, D&O insurance should be super cheap.

However, until litigation over the validity of these agreements has been settled in a conclusive way, D&O insurers will understandably be unwilling to take the risk that — in fact — a mandatory arbitration bylaw is struck down in court, and the company is then subject to a costly class action settlement. There's also the question of how plaintiffs might manipulate arbitration proceedings to create unexpected new costs for companies — and insurers.

Also, in the face of untested legal arguments, board members will continue to want robust protection for their personal balance sheets.

Over the long term, if courts and legislatures bless mandatory arbitration provisions and companies successfully force shareholders out of class-wide processes, it would transform the D&O insurance marketplace. For now, the legal picture remains in flux, leaving companies and insurers with interesting — and tricky — decisions.