Investment Manager Takes Aim at ExxonMobil Board of Directors

Exxon Mobil is once again under fire from activist investors and investment advisers, including CalPERS, the state of New York and proxy advisory firm Glass Lewis, who are threatening to vote against Exxon Mobil shareholder nominees.
ExxonMobil
How did the board end up like this? It is the result of a long-running campaign against the company by anti-fossil fuel factions; shareholders at odds with each other; and, shockingly, investment managers at odds with the economic interests of their beneficiaries.

As stated in SEC rules, “The duty of care requires advisers who have the authority to vote proxies for their clients to monitor corporate events and vote proxies. The duty of loyalty requires advisers to vote proxies in a manner consistent with their clients’ best interests and not substitute their own interests for those of their clients.” In this case, investment managers who vote against ExxonMobil’s directors may be voting against the interests of their beneficiaries and clients.

In a recent article, Financial Times He noted that European international oil companies that are active in green and renewable energy development projects are being punished by the market with lower valuations than U.S. oil companies, including ExxonMobil. Allen Brooks said on the Energy Musings substack on May 14:[t]The least valuable American IOCs are trading at valuations 30% higher than BP and Shell.”

At Shell’s annual general meeting on May 21, 78.2% of shareholders voted in favor of Shell’s relaxed climate plan, which relaxed some targets and extended the time frame for achieving them. In this context, Shell shareholders appear to have chosen to hold shares in fossil fuel producers themselves. Shareholders who previously sold their Shell shares had already voted.

It’s easy to ignore the recommendations of proxy advisory firm Glass Lewis, who don’t want to upset current and future clients who outsource to them. The firm was born out of a 2003 SEC requirement that investment advisers and managers make informed choices before voting proxies. Glass Lewis boasts that it has “more than 1,300 clients, including most of the world’s largest pension funds, mutual funds, and asset managers, with more than $40 trillion in assets in total.” But real asset managers, who are required by law to know about the securities they buy and sell, probably already know more about the issuers than any consultant. If they were going to follow Glass Lewis’ recommendation in this case, they shouldn’t own ExxonMobil stock in the first place.

CalPERS says it has a “fiduciary responsibility to minimize portfolio risk and capitalize on opportunities for our more than 2 million members.” CalPERS CEO Marcie Frost recognizes the conflict between symbolism and substance in investing in climate solutions. Given the lack of competitive rates of return on climate solutions, CalPERS is taking a pragmatic approach by maintaining its allocation to oil and gas companies, despite voicing opposition to ExxonMobil’s board nominees.

“CalPERS, the State of New York and other shareholders dissatisfied with ExxonMobil’s policies and candidates have not presented alternative candidates or an alternative business model that would enable ExxonMobil to maintain its financial performance. If ExxonMobil follows the lead of its disgruntled shareholders, these shareholders will be obligated to sell their shares. They cannot continue to run their portfolios through losses.”

Investment managers recognize that even if the international community achieves the goals of the Paris Agreement, oil and gas will remain in the business for the foreseeable future. Hundreds of millions of people around the world want the same benefits as developed countries, including access to affordable and reliable energy. U.S. oil and gas consumption appears to have plateaued, and despite now being the world’s largest producer of oil and gas resources, the U.S. remains an oil importer.

But until American consumers embrace a carbon-free future, minimizing carbon emissions by hindering efficient domestic mining and refining will neither achieve the goals of the Paris Agreement nor strengthen our national security. ExxonMobil’s proxy fight ahead of its annual meeting this week is raising costs and reducing profits for both disgruntled investors and the company.