The Texas Two-Step: When Strategy Learns to Dance Around Risk

Some business moves look bold.Some look defensive.And some look like choreography — carefully rehearsed, legally elegant, morally debated.

The Texas Two-Step is one such move.

What Is the Texas Two-Step?

It works like this:

1. A company splits into two entities

2. One keeps the operating business

3. The other takes the lawsuits and liabilities

4. The liability entity files for bankruptcy

5. The main business continues, largely untouched

The products stay on shelves.The brand stays visible.Only the responsibility changes rooms.

Why Companies Use It

Litigation is uncertain.Mass claims are expensive.And long legal battles drain leadership attention.

The Texas Two-Step offers:

• A way to isolate legal risk

• A way to cap exposure through bankruptcy courts

• A way to protect the operating business

• A way to create predictability from chaos

To boards, it looks like protection. To victims, it often feels like avoidance.

Johnson & Johnson: The Most Famous Two-Step

Johnson & Johnson used this strategy to manage massive lawsuits related to talc-based baby powder.

What they did:

• Created a new entity called LTL Management

• Moved talc-related legal claims into it

• Sent LTL into bankruptcy

• Continued normal operations in the main company

This move triggered intense backlash. Courts questioned whether a financially strong company should be allowed to use bankruptcy to manage lawsuits. Some filings were dismissed, refiled, and challenged again.

What stayed constant was the question:

Is bankruptcy meant for failure — or for convenience?

A Case That Worked: Georgia-Pacific (Koch Industries)

Georgia-Pacific, owned by Koch Industries, used a similar strategy to handle asbestos-related claims.

• Liabilities were placed in a unit called Bestwall

• Bestwall filed for bankruptcy

• Claims were consolidated into one settlement process

• The operating business continued without disruption

This approach moved forward with fewer reversals and created a controlled structure to manage decades of lawsuits.

Here, the dance worked.

Does the Texas Two-Step Still Exist Today?

Yes — and it is more controversial than ever.

The Texas Two-Step has not disappeared. It has simply become harder to use quietly.

In recent years:

• Courts have dismissed some Two-Step filings for lacking “good faith”

• Judges now examine whether companies are truly in financial distress

• Regulators and lawmakers have questioned whether the strategy undermines justice

• Some cases, like Georgia-Pacific’s Bestwall, continue to move forward, showing the strategy is still legally possible

Today, the Texas Two-Step lives in a narrow space — allowed, but watched.

It is no longer a clever trick.It is a legal gamble.

When Strategy Feels Like Avoidance

The move itself is legal in structure.But legality is not the same as legitimacy.

For companies, it offers control.For claimants, it often removes choice.

Thousands of individual voices become one courtroom queue.Negotiation becomes consolidation.Justice becomes procedural.

And public trust begins to thin.

The Real Question

The Texas Two-Step is not just a legal strategy.It is a moral signal.

It tells the world what matters more:

Protection — or accountability.Control — or consequence.Survival — or responsibility.

Because every restructuring tells a story.And every story reveals what a company truly values — not when it is winning, but when it is being asked to answer.