WORKERS CAPITAL
Calpers Opposes All Exxon Directors
Amid Shareholder Dispute
Kevin Crowley and Eliyahu Kamisher
Mon, May 20, 2024,
(Bloomberg) -- Calpers, the largest state public pension fund in the US, will vote against all Exxon Mobil Corp. directors, saying the oil giant is undermining shareholder rights.
Exxon sued two climate-focused investors earlier this year, accusing them of abusing the shareholder-proposal process. When the investors withdrew their proposals, Exxon opted to continue legal proceedings, asking the courts to provide more clarity on how the Securities and Exchange Commission interprets its own rules.
“This is a real problem for a shareholder like Calpers, where we believe that our voice matters,” Chief Executive Officer Marcie Frost said during a press conference Monday. Calpers has a long history of fighting for shareholder rights “and that’s why we can’t just sit idly by.”
Calpers and other environmentally minded shareholders believe Exxon’s suits will have a chilling effect on investors looking to raise legitimate concerns about climate change and corporate governance. But Exxon says allowing proposals that have repeatedly failed undermines the process. The oil giant said the sponsors of such proposals are activists seeking publicity.
“It’s unclear why Calpers is spending their time and energy defending the abuse of a shareholder process by proponents who have publicly stated they have no interest in creating shareholder value,” Exxon said in a statement. Those proponents are attempting “to silence the voices of up to 90% of our voting shareholders who have rejected the proposal twice.”
The row with Calpers adds to an already incendiary proxy season. Earlier this month, Glass Lewis & Co. recommended investors vote against Exxon Lead Director Joseph Holley due to the company’s “aggressive” tactics in the shareholder suit. Exxon fired back with accusations that Glass Lewis failed to disclose its relationship with a group that sponsors many of the same proposals.
Calpers manages roughly $490 billion of assets and owns about 0.2% of Exxon stock, according to data compiled by Bloomberg.
PUBLISHED MON, MAY 20 2024
Rohan Goswami@IN/ROHANGOSWAMICNBC/@ROGOSWAMI
KEY POINTS
CalPERS said it wouldn’t support Exxon Mobil’s full director slate and CEO Darren Woods because the company is continuing with a lawsuit against two activist investors.
The activists submitted a shareholder proposal around environmental disclosures and targets that Exxon sued to block.
Arjuna Capital and Follow This have withdrawn the proposal, but Exxon refuses to drop the suit.
ExxonMobil CEO Darren Woods speaks during the APEC CEO Summit at Moscone West on November 15, 2023 in San Francisco, California.
Justin Sullivan | Getty Images
Exxon Mobil’s monthslong battle with two environmentally focused activist investors has cost the company the support of the California Public Employees’ Retirement System.
CalPERS, a $484 billion pension fund manager, said in an open letter Monday it would vote in opposition to all of Exxon’s 12 director nominees and its CEO, Darren Woods, at the shareholder meeting next week as a result of the company’s potentially “devastating” effort to quash the two activists, Arjuna Capital and Follow This. CalPERS has a $1 billion stake in Exxon.
The two activists submitted a shareholder proposal that would have forced the company to reduce direct emissions and set a target for lowering emissions at suppliers and customers. Exxon sued the investors in Texas federal court in January, prompting them to withdraw the proposal.
Even with the activists backing off, Exxon has continued its lawsuit to prevent the activists from ever again submitting such a proposal. The company said in a statement to CNBC that Arjuna and Follow This are attempting to “silence the voices of up to 90% of our voting shareholders who have rejected the proposal twice.”
CalPERS said in its letter that Exxon’s “reckless” lawsuit threatened shareholder activism efforts on any issue.
“If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits?” CalPERS CEO Marcie Frost and board President Theresa Taylor said in the letter. “Worker safety? Excessive executive compensation?”
CalPERS said it’s urging other shareholders to follow its lead “to send a message that our voices will not be silenced.”
An Exxon spokesperson said the company had engaged with the pension fund and did “not understand how they can make such a poor fiduciary decision,” pointing to the board’s role in creating “industry-leading shareholder value.”
Exxon could have potentially prevented the shareholder proposal from going public without a lawsuit by asking the Securities and Exchange Commission for an exclusion, which is a common practice. But Exxon went ahead with litigation, and said it’s seeking “clarity on a process that has become ripe for abuse.”
“We believe activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value,” the company said in a post on its website.
Exxon has faced down activist investors in the past.
In 2021, Engine No.1 ran a campaign that landed the firm three board seats. Engine No. 1 had a 0.02% stake, compared with CalPERS’ current ownership of about 0.2%.
That campaign garnered support from a number of institutional investors, including CalPERS, in its effort to overhaul Exxon’s disclosure standards and reconsider the company’s place in a zero-carbon world.
CalPERS is now opposing those same three directors, Greg Goff, Kaisa Hietala and Andy Karsner, that it helped elect. Another activist investor, Inclusive Capital founder Jeff Ubben, is also on Exxon’s board.
“We hope ExxonMobil’s directors will reconsider the lawsuit, an effort that seems more suited to schoolyard bullying than corporate leadership,” CalPERS wrote in its letter.
Rohan Goswami@IN/ROHANGOSWAMICNBC/@ROGOSWAMI
KEY POINTS
CalPERS said it wouldn’t support Exxon Mobil’s full director slate and CEO Darren Woods because the company is continuing with a lawsuit against two activist investors.
The activists submitted a shareholder proposal around environmental disclosures and targets that Exxon sued to block.
Arjuna Capital and Follow This have withdrawn the proposal, but Exxon refuses to drop the suit.
ExxonMobil CEO Darren Woods speaks during the APEC CEO Summit at Moscone West on November 15, 2023 in San Francisco, California.
Justin Sullivan | Getty Images
Exxon Mobil’s monthslong battle with two environmentally focused activist investors has cost the company the support of the California Public Employees’ Retirement System.
CalPERS, a $484 billion pension fund manager, said in an open letter Monday it would vote in opposition to all of Exxon’s 12 director nominees and its CEO, Darren Woods, at the shareholder meeting next week as a result of the company’s potentially “devastating” effort to quash the two activists, Arjuna Capital and Follow This. CalPERS has a $1 billion stake in Exxon.
The two activists submitted a shareholder proposal that would have forced the company to reduce direct emissions and set a target for lowering emissions at suppliers and customers. Exxon sued the investors in Texas federal court in January, prompting them to withdraw the proposal.
Even with the activists backing off, Exxon has continued its lawsuit to prevent the activists from ever again submitting such a proposal. The company said in a statement to CNBC that Arjuna and Follow This are attempting to “silence the voices of up to 90% of our voting shareholders who have rejected the proposal twice.”
CalPERS said in its letter that Exxon’s “reckless” lawsuit threatened shareholder activism efforts on any issue.
“If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits?” CalPERS CEO Marcie Frost and board President Theresa Taylor said in the letter. “Worker safety? Excessive executive compensation?”
CalPERS said it’s urging other shareholders to follow its lead “to send a message that our voices will not be silenced.”
An Exxon spokesperson said the company had engaged with the pension fund and did “not understand how they can make such a poor fiduciary decision,” pointing to the board’s role in creating “industry-leading shareholder value.”
Exxon could have potentially prevented the shareholder proposal from going public without a lawsuit by asking the Securities and Exchange Commission for an exclusion, which is a common practice. But Exxon went ahead with litigation, and said it’s seeking “clarity on a process that has become ripe for abuse.”
“We believe activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value,” the company said in a post on its website.
Exxon has faced down activist investors in the past.
In 2021, Engine No.1 ran a campaign that landed the firm three board seats. Engine No. 1 had a 0.02% stake, compared with CalPERS’ current ownership of about 0.2%.
That campaign garnered support from a number of institutional investors, including CalPERS, in its effort to overhaul Exxon’s disclosure standards and reconsider the company’s place in a zero-carbon world.
CalPERS is now opposing those same three directors, Greg Goff, Kaisa Hietala and Andy Karsner, that it helped elect. Another activist investor, Inclusive Capital founder Jeff Ubben, is also on Exxon’s board.
“We hope ExxonMobil’s directors will reconsider the lawsuit, an effort that seems more suited to schoolyard bullying than corporate leadership,” CalPERS wrote in its letter.
Column: In a major rebuke to Exxon Mobil, CalPERS will vote against its entire board
Michael Hiltzik
Mon, May 20, 2024
Exxon Mobil Chairman & CEO Darren Woods, under fire for pursuing a lawsuit against shareholders even though they've withdrawn the proxy proposal the company opposed. (Mark Schiefelbein/AP)
Exxon Mobil can't say it wasn't warned.
Having opted to continue its lawsuit against two activist investor groups even after they withdrew a shareholder proposal the company management opposed, the giant oil company had gotten flayed by shareholder advocates for its bullying.
Now the big shoe has dropped: CalPERS, the largest public pension fund in the nation, announced Monday that it will vote against all 12 Exxon Mobil board members, including CEO Darren Woods, at the May 29 annual meeting.
CalPERS says it's acting because it judges the company's campaign against the two investor groups to be "designed to punish" investors who "dared to speak truth to power."
The pension fund says, "the repercussions of the lawsuit could be devastating....If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits? Worker safety? Excessive executive compensation?"
The announcement is a major step up from the pension fund's earlier comments about its intentions. Michael Cohen, the CalPERS chief operating investment officer, had earlier said only that the fund was considering voting against Woods.
Voting against the entire board and publicly urging other investors "to do the same," appreciably raises the stakes for Exxon, at least theoretically. CalPERS — the California Public Employees' Retirement System — is an institutional investor to be reckoned with. The $496-billion fund owns about $1 billion in Exxon Mobil shares.
Exxon Mobil's lawsuit "is a real problem for us as share owners," CalPERS CEO Marcie Frost said during a press conference Monday. "We believe that our voice matters, that we should be able to provide proxy solicitations asking the company to be more transparent in certain areas."
Exxon called CalPERS' action "a poor fiduciary decision." The company said through a spokesperson, "It’s unclear why CalPERS is spending their time and energy defending the abuse of a shareholder process...Far from having a chilling effect on shareholder proposals, our efforts are intended to get clarity on the rules to foster an environment for open and meaningful shareholder dialogue. If anything, CalPERS’ vote against our entire board appears to be an attempt to 'chill' shareholder voices."
As I reported last week, in February Exxon Mobil sued the U.S. investment firm Arjuna Capital and Netherlands-based green shareholder firm Follow This to keep a shareholder resolution they sponsored from appearing on the agenda of its annual meeting. The resolution was a plain-vanilla environmental proposal urging the company to work harder to reduce the greenhouse gas emissions of its products and to be more transparent about the impact of its business on the climate.
Days after the company sued, the shareholders, calculating their relative strength against the oil behemoth, withdrew the proposal and pledged not to refile it in the future. That rendered the lawsuit moot — but the company has refused to drop it.
What makes the lawsuit seem especially cynical is that the investors' proposal, like all such proposals, are not binding on management — they're advisory only. Moreover, as Frost pointed out, similar proposals in 2022 and 2023 failed to garner majority support from shareholders, winning only 10.5% of votes in 2022 and 27% last year.
Read more: Column: Exxon Mobil is suing its shareholders to silence them about global warming
"Exxon won," Frost said.
It's unlikely that CalPERS' action will result in the board's ouster. As CalPERS CEO Marcie Frost noted during a press conference Monday, no alternative slate of directors has been named for the upcoming annual meeting, so it would be "very difficult to say we're turning over this board."
But she said the fund's vote is "more than symbolic" — it's more about "sending the appropriate messages to this about their responsibilities in governance; if they don't want to deal with governance they should step aside."
Although CalPERS supported a slate of activist board members nominated in 2021— three of the four nominees won board seats — the fund said it is voting against the entire board because it is "allowing Chief Executive Officer Darren Woods to pursue a reckless and destructive effort."
Frost said CalPERS isn't contemplating taking a more aggressive action against Exxon Mobil, such as divesting its shares. "The problem with divestment when you're CalPERS is that you completely lose your voice. The moment you don't own shares, you can't sign on to other owners' proposals, you can't take action to say we don't believe that executive compensation is commensurate with the performance of the company."
Exxon Mobil asserts in its lawsuit that the investment funds’ proposed resolution breached standards set forth by the Securities and Exchange Commission governing the propriety of such resolutions — it was related to “the company’s ordinary business operations” and closely resembled resolutions on similar topics that had failed to exceed threshold votes at the 2022 and 2023 annual meetings. Both standards allow a company to block a resolution from the meeting agenda, or proxy.
That may be so, but the conventional practice is for managements to seek approval from the SEC to exclude such resolutions by requesting what’s known as an agency “no action” letter.
CalPERS says that would have been "the better option" than a lawsuit. It's not as though the SEC had set a high bar to issuing "no action" letters — the pension fund observes that the agency has approved two-thirds of those requests so far this year. Frost conjectured that, given the poor showing of similar proposals in the recent past, the SEC probably would have allowed the company to exclude the latest proposal from the annual meeting proxy.
Exxon Mobil's rationale for continuing the lawsuit is that the proposal rules "must be enforced or the abuse by activists masquerading as shareholders will continue threatening the system.”
Frost questioned the company's position. She described Exxon Mobil's goal in the lawsuit as obtaining "clarity around the ordinary business" standard. But "to me it doesn't feel like 'clarity'; it feels like diminishment" of shareholder voices. As for the company's insinuation that the system is broken, she said, "the system is working, if you use the system."
Michael Hiltzik
Mon, May 20, 2024
Exxon Mobil Chairman & CEO Darren Woods, under fire for pursuing a lawsuit against shareholders even though they've withdrawn the proxy proposal the company opposed. (Mark Schiefelbein/AP)
Exxon Mobil can't say it wasn't warned.
Having opted to continue its lawsuit against two activist investor groups even after they withdrew a shareholder proposal the company management opposed, the giant oil company had gotten flayed by shareholder advocates for its bullying.
Now the big shoe has dropped: CalPERS, the largest public pension fund in the nation, announced Monday that it will vote against all 12 Exxon Mobil board members, including CEO Darren Woods, at the May 29 annual meeting.
'If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits? Worker safety? Excessive executive compensation?'
CalPERS CEO Marcie Frost
CalPERS says it's acting because it judges the company's campaign against the two investor groups to be "designed to punish" investors who "dared to speak truth to power."
The pension fund says, "the repercussions of the lawsuit could be devastating....If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits? Worker safety? Excessive executive compensation?"
The announcement is a major step up from the pension fund's earlier comments about its intentions. Michael Cohen, the CalPERS chief operating investment officer, had earlier said only that the fund was considering voting against Woods.
Voting against the entire board and publicly urging other investors "to do the same," appreciably raises the stakes for Exxon, at least theoretically. CalPERS — the California Public Employees' Retirement System — is an institutional investor to be reckoned with. The $496-billion fund owns about $1 billion in Exxon Mobil shares.
Exxon Mobil's lawsuit "is a real problem for us as share owners," CalPERS CEO Marcie Frost said during a press conference Monday. "We believe that our voice matters, that we should be able to provide proxy solicitations asking the company to be more transparent in certain areas."
Exxon called CalPERS' action "a poor fiduciary decision." The company said through a spokesperson, "It’s unclear why CalPERS is spending their time and energy defending the abuse of a shareholder process...Far from having a chilling effect on shareholder proposals, our efforts are intended to get clarity on the rules to foster an environment for open and meaningful shareholder dialogue. If anything, CalPERS’ vote against our entire board appears to be an attempt to 'chill' shareholder voices."
As I reported last week, in February Exxon Mobil sued the U.S. investment firm Arjuna Capital and Netherlands-based green shareholder firm Follow This to keep a shareholder resolution they sponsored from appearing on the agenda of its annual meeting. The resolution was a plain-vanilla environmental proposal urging the company to work harder to reduce the greenhouse gas emissions of its products and to be more transparent about the impact of its business on the climate.
Days after the company sued, the shareholders, calculating their relative strength against the oil behemoth, withdrew the proposal and pledged not to refile it in the future. That rendered the lawsuit moot — but the company has refused to drop it.
What makes the lawsuit seem especially cynical is that the investors' proposal, like all such proposals, are not binding on management — they're advisory only. Moreover, as Frost pointed out, similar proposals in 2022 and 2023 failed to garner majority support from shareholders, winning only 10.5% of votes in 2022 and 27% last year.
Read more: Column: Exxon Mobil is suing its shareholders to silence them about global warming
"Exxon won," Frost said.
It's unlikely that CalPERS' action will result in the board's ouster. As CalPERS CEO Marcie Frost noted during a press conference Monday, no alternative slate of directors has been named for the upcoming annual meeting, so it would be "very difficult to say we're turning over this board."
But she said the fund's vote is "more than symbolic" — it's more about "sending the appropriate messages to this about their responsibilities in governance; if they don't want to deal with governance they should step aside."
Although CalPERS supported a slate of activist board members nominated in 2021— three of the four nominees won board seats — the fund said it is voting against the entire board because it is "allowing Chief Executive Officer Darren Woods to pursue a reckless and destructive effort."
Frost said CalPERS isn't contemplating taking a more aggressive action against Exxon Mobil, such as divesting its shares. "The problem with divestment when you're CalPERS is that you completely lose your voice. The moment you don't own shares, you can't sign on to other owners' proposals, you can't take action to say we don't believe that executive compensation is commensurate with the performance of the company."
Exxon Mobil asserts in its lawsuit that the investment funds’ proposed resolution breached standards set forth by the Securities and Exchange Commission governing the propriety of such resolutions — it was related to “the company’s ordinary business operations” and closely resembled resolutions on similar topics that had failed to exceed threshold votes at the 2022 and 2023 annual meetings. Both standards allow a company to block a resolution from the meeting agenda, or proxy.
That may be so, but the conventional practice is for managements to seek approval from the SEC to exclude such resolutions by requesting what’s known as an agency “no action” letter.
CalPERS says that would have been "the better option" than a lawsuit. It's not as though the SEC had set a high bar to issuing "no action" letters — the pension fund observes that the agency has approved two-thirds of those requests so far this year. Frost conjectured that, given the poor showing of similar proposals in the recent past, the SEC probably would have allowed the company to exclude the latest proposal from the annual meeting proxy.
Exxon Mobil's rationale for continuing the lawsuit is that the proposal rules "must be enforced or the abuse by activists masquerading as shareholders will continue threatening the system.”
Frost questioned the company's position. She described Exxon Mobil's goal in the lawsuit as obtaining "clarity around the ordinary business" standard. But "to me it doesn't feel like 'clarity'; it feels like diminishment" of shareholder voices. As for the company's insinuation that the system is broken, she said, "the system is working, if you use the system."
Michael Hiltzik
Commentary on economics and more from a Pulitzer Prize winner.
This story originally appeared in Los Angeles Times.
Commentary on economics and more from a Pulitzer Prize winner.
This story originally appeared in Los Angeles Times.
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