The proxy contest between Exxon Mobil and Engine No. 1 could be the biggest ever – hyperbole justified by what the two parties are spending as well as the rhetoric over what it means for the future of our planet.
Exxon Mobil vs Engine No. 1
Exxon told shareholders this week it expects to spend $35 million on soliciting proxies as part of the fight over four board seats, while the activist put its estimated bill at $30 million. The combined sums trump the $60 million estimated by Procter & Gamble and Trian Partners in their 2017 proxy fight over one board seat, although Trian frequently accused the company of spending over $100 million.
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Exxon's sheer size – with 4.2 billion shares entitled to vote and a market cap of $242 billion – and its high percentage of retail shareholders ensure that pursuing votes in the proxy fight will be an extensive process. Each side filed definitive proxies more than two months before the May 26 annual meeting.
If it maintains its current share price, the oil supermajor will be the largest company to ever fight a proxy contest, with Procter & Gamble valued at a little under $235 billion the day before its showdown with Trian. The consumer goods giant was the slightly larger company at the outset of the respective campaigns, but Exxon has enjoyed a 39% rally in its stock price since December 7 (even after losing some steam in the past week).
In a twist, the proxy solicitors representing each side will reprise their roles in the Procter & Gamble fight. Exxon has retained D.F. King and MacKenzie Partners at a combined cost of $2.5 million, while Engine No. 1 will pay Innisfree M&A $2 million in fees. Proxy statements for each side show the number of people involved in the solicitation overall as slightly less than in 2017, reflecting the growing role of social media in proxy fights.
Big Talks On Both Sides
In addition to big bucks, there is plenty of big talk on both sides. Exxon told shareholders this week that "Engine No. 1 is proposing that we radically reduce investment to levels that would endanger future cash flows that are needed to sustain and grow the dividend, future projects and low-carbon initiatives to support the energy transition."
For its part, the newly-formed activist says on its website, "Exxon Mobil’s iconic status is being chipped away in the face of diminished returns, high debt levels, and questions about its ability to maintain its dividend."
The campaign, covered in great depth in the new issue of Activist Insight Monthly, is literally about whether Exxon’s board is well-suited to manage its investments in low-carbon technology and judge whether projected returns on capital spending justify the expense. But it is also about issues fundamental to the future of the energy industry, such as the role of carbon capture, proper targets for net emissions, and likely future demand for oil and gas-powered energy. That is to say, the contest is currently being fought on a philosophical level, whereas Procter & Gamble was a referendum on past performance and corporate structure.
The Past And Present Will Play A Growing Role
Yet even if some shareholders are divided on the big questions, the past and present will play a growing role as May 26 approaches. Exxon has irked shareholders including the California State Teachers’ Retirement System (CalSTRS) and BlackRock with its long history of ignoring climate concerns but has more lately been racing to make up ground, adding three new directors this year and putting a greater emphasis on low-carbon technology. Oil prices have gained ground for months and even prompted talk of a "supercycle" this week, before taking a turn on Thursday.
As yet, there has been no talk of the proxy fight being optioned for a TV special, like the GameStop drama of earlier this year. Perhaps that’s because a hedge fund and a supermajor battling over climate change still seems implausible, or because the talent agents are waiting to see what the next act brings. But when it comes to bingeworthy infotainment, you can get a lot for $65 million.
Josh Black, Editor-in-Chief, Insightia
Banks are once again proving to be a microcosm for shareholder concerns, covering environmental, social, and governance issues. In April alone, 14 shareholder proposals will be subject to a vote at U.S. and Canadian banks, according to Proxy Insight Online data, with a further two on the agenda at U.K. banks in the following month.
In the U.S., shareholders have raised a variety of social- and governance-related concerns. Bank of America (BofA) will face four shareholder proposals at its April 20 annual meeting, seeking a racial equity audit, proxy access amendments, and the right to act by written consent.
In a proposal by Change to Win (CtW) Investment Group, BofA is urged to oversee a racial equity audit, analyzing the bank’s "adverse impacts on non-white stakeholders and communities of color."
In its proposal, CtW suggests BofA has a "conflicted history when it comes to addressing racial injustice," offering a disproportionate amount of home loans to white applicants compared to minority applicants in Philadelphia in recent years, as well as reducing its number of branches in majority-Black communities.
Canadian Banks Under Scrutiny
Canadian banks are also under increased scrutiny from shareholders, especially regarding environmental concerns. The Toronto Dominion Bank, Laurentian Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce (CIBC), and Royal Bank of Canada (RBC) will all face shareholder proposals relating to sustainable investments in the coming weeks.
Le Mouvement d'éducation et de défense des actionnaires (MÉDAC) filed nine shareholder resolutions this proxy season, urging Canadian banks to produce reports on loans made in support of the so-called circular economy, "aiming to optimize the use of resources at all stages of the life cycle of a good or service, reducing the environmental footprint, and contributing to the wellbeing of individuals and communities."
"The development of this new way of doing things cannot be done without financing from Canadian banks," the proposals read. "The purpose of this proposal is to raise shareholder awareness to the bank’s support of the growth of this new economy in recent years."
In the U.K., HSBC and Barclays have been subject to similarly heated engagements with shareholders concerning fossil fuel funding. Following the filing of a proposal by shareholder advocacy organization ShareAction calling for the bank to publish its strategy to reduce exposure to fossil fuel assets, HSBC established a board-backed proposal pledging to divest from fossil fuels by 2030 in the EU and by 2040 elsewhere.
The management proposal will become binding if approved by 75% of votes cast at HSBC’s May 28 annual meeting, but ShareAction warned it may take further action next year if "unsatisfied with the bank’s implementation of the new commitments."
For the second consecutive year, Barclays shareholders will also vote on a shareholder proposal calling for the bank to reduce lending to the fossil fuel sector, following concerns that Barclays’ current climate action plan fails to reduce emissions at an adequate pace.
"Funding fossil fuels has been Barclays’ and HSBC’s dirty little secret," said Adam McGibbon, U.K. campaigner at Market Forces, in a press release. "Strip away the slick marketing and they are two of the world’s biggest funders of the climate crisis. Banks that continue funding fossil fuels are going to face an exodus."
Banks play a key role in supporting the growth of socially responsible investing, and this increased engagement represents a growing understanding from shareholders of the consequences of continued ESG oversight.
In 2020, 10 environmental and social (E&S) proposals were filed by shareholders at U.S. and European-listed banks, compared to five in 2019, according to Proxy Insight Online data. This record has already been exceeded this year, with 11 E&S proposals filed by shareholders, and many more undoubtedly to come.
"ESG oversight is an area where we’re seeing investors and proxy advisors give more specific guidance on their expectations," said Allie Rutherford, managing director at PJT Partners, in an interview. "Some of the largest institutional investors are providing greater insight into how they analyze shareholder proposals, particularly around board and workforce diversity disclosure and climate risk."
Rebecca Sherratt, Corporate Governance Editor, Insightia