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There are shareholder votes that matter and there are those that do not. ExxonMobil may be confusing the two. A small Massachusetts-based investment fund, Arjuna Capital, has in recent years exercised its legal rights to bring non-binding shareholder votes, urging the oil major to reduce production in the name of combating climate change.
Shareholders have handily rejected them. But this year Arjuna tried again. Federal securities laws also allow companies to go to the Securities and Exchange Commission to exclude such “precatory” or advisory votes. Often such appeals are successful.
Instead, Exxon went to federal court in Texas to invalidate the proposal, a seemingly heavy-handed approach even after Arjuna withdrew its efforts and pledged never to try again.
Yet somehow, Exxon has prompted an even bigger shareholder revolt. The likes of Norway’s wealth fund and Calpers are set to vote against the oil group’s directors at this week’s annual meeting to voice their displeasure at its scorched earth lawfare, even as they may not necessarily support Arjuna’s underlying ideas.
It is one thing to play rough with a inconsequential firm such as Arjuna. It is another to awaken some of the largest institutional investors in the world to what may be a broader assault on shareholder rights.
And while climate change is the proximate issue in this particular fight, a larger war is brewing about how companies should manage the social issues that touch shareholder value creation and even corporate purpose.
For its part, Exxon says it is merely pursuing the legal avenues available to it in the Arjuna matter. Observers have noted that the company filed its lawsuit in a relatively conservative district court that has not been shy about making pro-business decisions. At the same time, the SEC has also recently mandated climate risk disclosures that companies will be required to make.
Exxon chief executive Darren Woods remarkably wrote in the FT that “Calpers’ fiduciary duty is not furthered by their attack on our company”, adding: “They should leave politics to the politicians.”
How “politics” and sound long-term corporate strategy gets resolved is becoming more complicated — as is who gets a voice, if not a seat, in the boardroom. Mainstream investors themselves are wrestling with how much they should push managers over nascent social matters.
Exxon’s market capitalisation today is $500bn, leaving nearly any single shareholder powerless. A few years ago, a tiny start-up ESG investor, Engine No. 1, was able to win board seats. The oil group would want to avoid that ever happening again. But its recent aggression is rallying a diverse opposition and tempting fate.