Johnson & Johnson Tries Out “The Texas Two Step” And What You Can Do About It

You are perhaps not aware, but the venerable Johnson & Johnson is currently trying to execute a corporate maneuver that is colloquially known as the "Texas Two-Step."

What the heck is that?

This is the term used in legal and regulatory circles for a business gambit whereby companies try and avoid possibly ruinous payment awards by ring-fencing their liabilities into a separate corporate entity that goes on to seek bankruptcy protection.

The reason it is called the Texas Two-Step is that it is a legal maneuver can only be carried out under Texan state corporate law. This legal shuffle is pretty simple in theory:

  1. Become a legal entity in Texas.

  2. Split your company in two and place all your liabilities in a new corporate entity (let's go with "Texas2StepCo").

  3. Then, Texas2StepCo promptly applies for Chapter 11 protection which protects it from claims in the immediate and likely limits them in the future while dragging the whole process out.

This severs the legal liability in question from the rest of your company. Not coincidentally, it also ringfences the profits and protects them from whatever punishments and payouts may be part of a judgment for the liability in question.

This positive is that, in theory, it protects the corporate bottom line and also keeps a good company from being ruined by a series of possibly extreme tort judgments.

The negative is that it allows a corporation to limit its liability in the event of serious wrongdoing.

Like with anything having to do with the law, the whole maneuver gets pretty complicated and comes down to the idea of what is (or is not) something termed a "fraudulent transfer." Most states won't let corporations do this because it would be considered such a transfer but Delaware and Texas are exceptions. Hence, the “Texas Two-Step.”

And why does it matter?

It is a fair question. And traditionally was a tough one to answer usefully. By "usefully" we mean: so that you could do anything about it.

However, these days it would seem as if there are 2 important reasons The Texas Two-Step matters.

  • On one hand, it obviously does matter. Most people can probably see that. Allowing companies to avoid liability for mistakes or even wilful bad behavior erodes consumer trust and also, of course, subtly incentivizes rule breaking and illicit activity.

It creates a moral hazard where thanks to limited liability and the possibility of doing a Texas Two-Step, company executives have little to dissuade them from trying something unethical.

And since we can't expect everyone to be ethical this is a real risk. This is especially problematic when very systematically important firms make either mistakes or, more rarely, wilful errors.

For instance, in Johnson & Johnson's case, they are spinning up a new legal entity to protect themselves against liabilities over the alleged use of asbestos in their talc powder which then caused various forms of cancer.

The legal judgments could be many, many billions of dollars. And J&J can likely afford them but they may not have to if they are successful in their Texan corporate dance. This suggest that Johnson & Johnson will avoid responsibility for its actions.

That is the very opposite of the message you want to send to corporate America or the average citizen.

But, on the other, it is also very far and above the concerns of regular people. Yes, it would absolutely be terrible to have a company sell you a health product that you use every day (or on your children!) that then gives you a terrible, lethal disease.

  • But you are, of course, just a regular person and likely not a lawyer. Yes, you can vote and even protest such a maneuver but your ability to change the law - let alone the law in Texas - is limited. You might wish this disingenuous legal maneuver wasn't possible but it is also very complicated and keeping track of it is hard enough let alone finding the way to actually shift US corporate tort law.

But now you have another option in your arsenal.

Just about everyone owns Johnson & Johnson stock (ticker JNJ). Frankly it would be difficult not to.

It is one of the biggest, most stable and perennially profitable of global US multinationals. Its equity is nearly as ubiquitous as its products. It is the bluest of blue chip companies.

And you don't have to own it.

Not single share.

With Pebble you can easily exclude JNJ from your portfolios. All of them. And stay safely and cheaply invested.

This does two things:

  1. It allows you to vote your conscience and send a clear message to companies like J&J whether they are listening or not.

  2. It keeps you from trying to follow every twist and turn of a massive class action lawsuit (or several of them) across many jurisdictions and years and years of legal maneuvering.

So, you can go back to doing the things that you can actually control and make a positive impact in your life and your community. And if you want to send a bigger message about your decision and why you made it, well, you can let the company know on social media.

We make that easy too.


Have questions? Care to find out more? Feel free to reach out at or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.


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