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There are shareholder votes that matter and there are others that don’t. ExxonMobil may be confusing the two. A small Massachusetts-based investment fund, Arjuna Capital, has in recent years exercised its legal rights to obtain non-binding shareholder votes, urging the oil company to reduce production in the name of fighting climate change.
Shareholders have comfortably 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. These appeals are often successful.
Instead, Exxon went to federal court in Texas to quash the proposal, an apparently harsh approach even after Arjuna withdrew his efforts and vowed never to try again.
Yet somehow, Exxon has sparked an even bigger shareholder revolt. The likes of Norway’s wealth fund and Calpers will vote against the oil group’s directors at this week’s annual meeting to express their displeasure at his scorched earth law, even if they don’t necessarily support Arjuna’s underlying ideas.
It’s one thing to play hardball with an inconsequential company like Arjuna. Another is to wake up some of the world’s biggest institutional investors to what could be a broader attack on shareholder rights.
And while climate change While the most proximate issue in this particular fight, a broader war is brewing over how companies should manage social issues that affect shareholder value creation and even corporate purpose.
For its part, Exxon says it is simply taking advantage of the legal avenues available 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 CEO Darren Woods notably wrote in the Financial Times that “Calpers’ fiduciary duty is not enhanced by his attack on our company,” adding: “They should leave politics in the hands of politicians.”
How “politics” and sound long-term corporate strategy are resolved is becoming more complicated, as is who has a voice, if not a seat, in the boardroom. Traditional investors themselves are debating how much they should push managers on emerging social issues.
Exxon’s market capitalization today is $500 billion, leaving almost any shareholder powerless. A few years ago, a small emerging ESG investor, Engine No. 1, was able win seats on the board of directors. The oil group would like to prevent this from happening again. But its recent aggression is generating diverse opposition and tempting fate.