Investor Activism: ExxonMobil faces opposition at AGM
Monday 1st June 2020
Multinational oil and gas company ExxonMobil held its Annual Meeting of Shareholders on Wednesday 27th May 2020. In line with many other companies, the event was held virtually in order to maintain social distancing.
Such meetings provide shareholders with the opportunity to vote on certain matters relating to the company. This usually includes the (re-)appointment of auditors, nomination of directors to the Board and advisory votes on the compensation of senior executives.
At this year’s ExxonMobil AGM, investors ultimately voted on each item in the way that the Board had recommended. However, it is interesting to note some of the items where there was notable opposition.
Independent Chairman
The Chairman heads the company’s Board – which provides oversight of the company’s management. The CEO of the company is the senior executive ultimately responsible for running the company. Currently, ExxonMobil’s CEO is also the Chairman of its Board. This practice is relatively common in the US, where 47% of companies on the S&P 500 have such a combined Chairman/CEO role.
The shareholder proposal put forward at this AGM was to separate these two roles (so that an independent director holds the Chairman position) when the company transitions to its next CEO.
In some jurisdictions, such as the UK, general corporate governance practice is that these roles are separate. Many proponents of this position argue that this is necessary for the independence of the Board in providing oversight of the company’s management (including the CEO). Indeed, this view was put forward by the statement supporting this shareholder proposal.
The ExxonMobil Board recommended that shareholders vote against the proposal. In the proxy materials sent to shareholders in advance of the meeting, the Board said that, in a business environment with constant changes in market conditions and risks, a joint “Chairman/CEO is best positioned, with deep Company knowledge and industry experience, to highlight those issues with the Board, ensuring appropriate oversight and discussion.”
Nevertheless, a number of large institutional investors in ExxonMobil announced their intentions to vote in favour of the proposal for an independent Chairman. BlackRock – the world’s largest fund manager with over $6 trillion in assets under management – announced its intention to vote in favour of the proposal, raising concerns about ExxonMobil’s response to climate change targets. BlackRock owns just under 5% of ExxonMobil.
UK-based Legal & General Investment Management (LGIM) also announced that it would be voting in favour of this shareholder proposal. LGIM also confirmed its position announced in January 2020, that it intends to “vote against combined [Chairman/CEO] roles at director elections globally.”
In the end, the shareholder proposal for an independent Chairman was not passed, with 32.7% of votes in favour and 67.3% of votes against.
Report on Lobbying
Another shareholder proposal put forward at the AGM was for ExxonMobil to engage in greater reporting and disclosure of its lobbying activities. In a supporting statement for the proposal contained within proxy materials for the AGM, proponents sought an annual report to provide “full disclosure of ExxonMobil’s direct and indirect lobbying activities and expenditures to assess whether ExxonMobil’s lobbying is consistent with its expressed goals and in shareholder interests.” They noted that from 2010 to 2018, ExxonMobil had spent over $110 million on federal lobbying. This does not include lobbying at state-level in the US or lobbying overseas – the same statement noted ExxonMobil spent “between €3,250,000 – €3,499,999 on lobbying in Europe for 2018.”
The ExxonMobil Board recommended that shareholders vote against this proposal. They noted a commitment to “appropriate transparency”, the fact that “lobbying and political engagements are addressed as part of the Board’s oversight of the Company’s enterprise-risk framework” and ExxonMobil’s “strict internal review and oversight process to ensure its public policy positions are aligned with lobbying activities.” The Board further noted that “the proponent’s specific positions on lobbying disclosure included in this proposal are more appropriately addressed to the U.S. Congress, the Executive Branch, and state and local governments.”
Once again, several institutional investors signalled that they would vote in favour of the proposal for further lobbying disclosure. These included LGIM and the Church Commissioners for England – in their capacity overseeing the investment of the Church’s wealth.
In April 2020, the Church Commissioners (alongside the New York State Common Retirement Fund) wrote an open letter to ExxonMobil shareholders, encouraging them to vote in favour of this lobbying disclosure proposal, in favour of the aforementioned proposal for an independent Chairman and – significantly – to vote against the re-election of the entire ExxonMobil Board. Edward Mason, Head of Responsible Investment for the Church Commissioners for England, said in the open letter that the move was “a measure of our profound dissatisfaction with ExxonMobil’s approach to climate change risks and the governance failures that underpin it. We believe that ExxonMobil can do so much better, and that a change in strategy and governance can bring about a long overdue improvement in shareholder returns.”
However, at the AGM, the proposal for a report on lobbying was not approved. 37.5% of votes were cast in favour of it, with 62.5% of votes against.
(Re-)election of Board members
Several institutional investors indicated that they would oppose the nominations of some or all of the proposed ExxonMobil Board members. The Church Commissioners for England indicated that they would oppose the re-election of the entire ExxonMobil Board. LGIM stated that they would vote against the re-election of the ExxonMobil Chairman. BlackRock also signalled its intent to vote against certain Board nominations. The asset manager said that it would vote against the re-election of Angela Braly, Chair of ExxonMobil’s Public Issues and Contributions Committee, and that of the Board’s lead independent director – Kenneth Frazier.
Ultimately, ExxonMobil reported that over 93% of the votes were cast in favour of the nominated Board members.
Conclusion
In the end, all of the votes at the meeting went in the direction that the Board had previously recommended to shareholders. Nevertheless, the size of the opposition vote share on some of the above proposals is significant. Many items are voted through with far greater consensus. For instance, the appointment of auditors was passed with 96.8% of the votes. Examined through that lens, the 32.7% vote share in favour of an independent Chairman and the 37.5% vote share in favour of a report on lobbying are notable. Although the proposals were not passed, the support for them shows that investors are likely to continue to exercise their voting rights in order to pressure companies to reform their corporate governance practices and, increasingly, take significant steps towards meeting climate change goals.
