Big Oil is on a winning streak and ESG just took a sucker punch.
ExxonMobil shareholders have voted to re-elect all 12 of the company’s directors, despite protests from large pension funds over its decision to pursue stock-holding activists in court.
So what? Big Oil is on a winning streak and ESG just took a sucker punch. The activist shareholders Follow This and Arjuna Capital withdrew their proposals to reduce Exxon’s emissions and promised never again after the oil major threatened legal action in Texas federal court. Exxon sued anyway. Which matters because…
- It prompted a rebellion from two of the biggest money pots on the planet: CalPERS, the $462 billion Californian state pension fund, and Norges, Norway’s $1.6 trillion sovereign wealth fund. Both opposed the re-election of Exxon’s CEO Darren Woods. Woods hit back in an op-ed saying they should “leave politics to the politicians”.
- It shows a change in the political weather that Exxon felt comfortable employing such a heavy-handed approach. Officials from 19 Republican states called on investors to back the board.
- It opens up a broader fight over the rights of shareholders to challenge boards and management.
Climate crusades. Many have tried to force a green conversion at Exxon. But since the Engine No.1 hedge fund won a historic victory three years ago and claimed three board seats, the activists have made slow progress.
- Susan Avery, the atmospheric scientist appointed to Exxon’s board in 2017, stepped down this year having received more than $3.8 million in stock value and compensation. She’s accused of using her expertise and position to “lend credibility” to Exxon’s climate claims (and did not respond to requests for comment).
- Miranda Kaiser, fifth generation heir to the Rockefeller fortune, has used the family’s philanthropic fund to bankroll more than 30 lawsuits in which Exxon is a defendant. But cases brought in San Francisco and New York have been dismissed. A case accusing Exxon of misleading consumers could be heard by 2025.
- Exxon’s stock reached an all time high in April this year. It’s the first energy company to reach a half trillion-dollar market cap.
Lessons in lawfare. Exxon didn’t have to go to court to make its point. When firms want to keep a proposal off the shareholder ballot they’re free to appeal to the US Securities and Exchange Commission. But Exxon wants to make an example. It claims the activists are driven by an “extreme agenda” and have hijacked the proxy voting process (which the SEC expanded in 2021) to champion proposals that could damage Exxon’s core business. Gary Gensler, the SEC chair, has declined to throw out proposals if they have a “broad societal impact”.
Marcie Frost, CalPERS’ CEO, says Exxon is pursuing an “anti-speech” effort by asking a US district judge to rewrite the rules on bringing proposals. She argues Exxon’s plea for “clarity” over SEC rules is masking its real intent, namely “to tilt the balance of power towards corporate C-suites and boardrooms”. Woods’ essential argument is that the board knows better.
What about S and G? Could Exxon’s attempts to shut down votes on scope 3 emissions have a chilling effect on other types of shareholder proposals, on pay or DEI for instance? Frost thinks so. In an interview with Bloomberg she said Exxon’s action had “far more implications than just climate”.
This goes to the heart of a debate about how much power smaller activists, or proxy advisors for that matter, should have over governance decisions. Are they a distraction? Or an important catalyst for debates about a company’s future risks and returns?
Exxon’s punchy tactics are working for its shareholders, for now. But the argument it has implicitly made – that investors should vote with their wallets and leave governance to the board – is going to upset those who fear an erosion of shareholder democracy. Sooner or later pushing boundaries, whether planetary or plebiscitary, makes you a target.
