Engine No. 1 wins at least 2 Exxon seats in dramatic vote
This article was first published on Proxy Insight Online on May 26, 2021. For more information about the product, click here.
Activist investor Engine No. 1 won two seats on Exxon Mobil’s board at the company’s Wednesday meeting, according to preliminary results.
Engine No. 1’s nominees Kaisa Hietala and Gregory Goff were approved by Exxon shareholders, while the company noted that Alexander Karsner’s election is yet to be determined. Engine No. 1’s fourth nominee, Anders Runevad, was not elected.
Engine No. 1, which was seeking four board seats on a platform of adding expertise in exploring new, low-carbon energy sources and imposing capital allocation discipline on a management team that has spent big on oil and gas production, had won partial support from both leading proxy advisers and a host of pension funds. Institutional Shareholder Services (ISS) had backed Hietala, Goff, and Karsner, while Glass Lewis recommended in favor of Goff and Karsner.
The proxy contest, an extraordinary David and Goliath battle that saw a just-formed hedge fund predict it would spend almost as much on the solicitation as it did on building its 0.02% stake, is the first environmentally themed proxy contest to fundamentally challenge an incumbent board and the culmination of an escalation in climate-related concerns among mainstream investors.
Of Exxon’s 12 board members, eight were re-elected, including Inclusive Capital Partners’ Jeff Ubben and CEO and Chairman Darren Woods. Exxon noted that the re-election of four other directors was yet to be determined.
The company dramatically extended the voting deadline by one hour during its annual meeting as votes were still coming in, a move the activist said in a statement was “using corporate machinery for its own purpose rather than that of shareholders,” in order to “stave off much-needed board change.”
Following the meeting, Exxon CEO Darren Woods said he looked forward to working with the new directors and that the votes were influenced by demand for carbon emission reductions in an interview with CNBC. “What we’re seeing with these votes is the desire to put pressure on that space and into areas where we can to accelerate that to help society through this transition but at the same time to recognize that we’re going to need oil and gas as societies transition.”
Ahead of the vote, Engine No. 1 co-founder Charlie Penner said that throughout the activist’s campaign, which was sparked in December last year, Exxon “closed ranks” rather than being “open to the idea of adding qualified and independent directors.” Penner added that despite the experience Engine No. 1’s nominees offer in the energy sector, Exxon continued to label them as unqualified, saying “this is a board that needs to look in the mirror and ask how it came to that.”
“The good news is that, no matter what the outcome of today’s vote, change is coming,” Penner said in his statement to shareholders.
On Friday, Insightia reported that enough Exxon shares were held by shareholders that typically vote with proxy voting advisers in contested elections to give Engine No. 1 a shot at winning at least some seats, but the results were always likely to be close because of the potential for one wayward vote and the large influence of retail shareholders.
Institutional investor BlackRock reportedly voted for three of Engine No. 1’s nominees ahead of the Wednesday annual meeting, while other shareholders including Legal & General and EOS at Federated Hermes have also backed the dissident slate. Norges Bank Investment Management said it planned to support the majority of Exxon’s board.
In an effort to win over other investors like Vanguard and State Street, Exxon on Monday announced it would add two independent directors in the next 12 months, though the move was criticized by Engine No. 1.
A host of shareholder proposals unrelated to Engine No. 1’s challenge signified a high level of engagement by other investors, with other supermajors also feeling the pressure on Wednesday. Separately, energy company Shell said it would appeal a judgement by a Dutch court that ruled the energy company must cut its carbon emissions by 45% by 2030 and Chevron lost a vote on a shareholder proposal to set Scope 3 carbon emission targets, which encompass emissions produced by consumers.
During Exxon’s meeting, shareholders criticized the company for describing itself as “Paris-aligned” rather than complying with the requirements of the Paris Agreement.
“The fact that at least two of Engine No. 1’s four board candidates were elected reflects the right of shareholders to escalate the demand for transformation at companies such as Exxon,” said Andrew Behar, CEO of As You Sow and a member of the stakeholder group Coalition United for a Responsible Exxon (CURE) after the vote. “The new board should act on this mandate for change and adopt Paris compliant transition plans immediately and begin the hard, but necessary work of creating the roadmap to transform the company’s core business.”