Exxon Mobil’s Legal Challenge Over Shareholder Resolution Sparks Concern Among Activist Investors
Stakeholder activists are expressing concerns over a legal maneuver by Exxon Mobil, bypassing the United States’ financial regulator, potentially impacting their ability to influence corporations on environmental and social matters. These investors, who traditionally leverage shareholder resolutions to prompt corporate action, fear their sway may diminish due to Exxon’s legal strategy.
Under the administration of President Joe Biden, the Securities and Exchange Commission (SEC) has tightened rules, making it harder for corporations to dismiss shareholder resolutions without a vote. Despite this, Exxon Mobil has circumvented the SEC, launching a lawsuit earlier this month against two of its shareholders. These shareholders had proposed a resolution urging the oil giant to establish new benchmarks for cutting certain greenhouse gas emissions. Exxon contends that these investors are misusing the process to shrink its fossil fuel operations, rather than enhancing shareholder value, noting that a similar proposal was rejected by 90% of its shareholders the previous year.
As the largest oil producer in the U.S., Exxon is seeking a court decision by March 19, with a request to expedite the case. This move is crucial for their proxy statement, which must be filed by April 11, ahead of their annual shareholder meeting in May. Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR), which represents religious and socially conscious asset managers, voiced apprehension that Exxon’s action could intimidate smaller investors who lack the resources to legally confront large companies.
Although most shareholder resolutions are non-binding, they are often heeded by companies when they receive substantial support, as a gesture of responsiveness to investor concerns. Amy Borrus, the executive director of the Council of Institutional Investors, highlighted the essential role these resolutions play in allowing investors to communicate their views to a company’s management and board.
The legal path taken by Exxon has raised alarms among various stakeholders. Companies and trade groups have criticized the SEC’s policy shift in 2021, which made it more challenging to block resolutions on the grounds of micromanagement. This change emboldened activists, leading to a significant rise in shareholder proposals. Data from the law firm Gibson, Dunn & Crutcher shows a record number of submissions since 2016, with 889 proposals filed during the 2023 proxy season.
Mark Uyeda, an SEC commissioner, pointed out that the agency’s current stance might have deterred companies from seeking SEC assistance, pushing them towards legal avenues instead. Uyeda, expressing his personal views, noted a shift in perception regarding the SEC’s role as a fair mediator. This development comes amidst another proposed rule change under SEC Chair Gary Gensler, which could further ease the criteria for resolutions.
Exxon’s spokesperson argued for the enforcement of existing rules to prevent what they termed as the increasing abuse of the system. They emphasized that their lawsuit targets only the specific resolution on greenhouse gas emissions, and the company remains engaged with other shareholder proposals.
The outcome of Exxon’s contested resolution remains uncertain. Follow This, a Netherlands-based environmental activist group and one of the resolution’s sponsors, only received moderate support for similar resolutions at other major oil companies in 2023.
This situation also highlights the broader legal landscape, with corporate lobbying groups hoping for more expansive court rulings. The National Association of Manufacturers is seeking a judicial declaration that the SEC lacks the authority to mandate the inclusion of shareholder proposals in ballots.
It’s important to note that this report provides an overview of current events and should not be considered financial advice. Decisions regarding investments and corporate actions should be made with due diligence and professional consultation.