Engine No. 1 has launched a campaign at Exxon Mobil, aiming for four board seats, a new investment strategy, and changes to the energy giant’s compensation scheme.
Engine No. 1, the $250 million investment firm launched just last week by three hedge fund industry veterans including former Jana Partners portfolio manager Charles Penner, has on Monday sent a letter to Exxon’s board calling for a remake the activist believes will strengthen the iconic energy company.
Engine No. 1 said that Exxon has fallen behind its peers and the broader market in terms of total shareholder return over the last decade and complained about the company’s falling return on capital employed (ROCE) for upstream projects as well as Exxon’s debt burden, which is at its highest level on record.
The activist identified several fundamental issues behind Exxon’s underperformance: a poor long-term capital allocation strategy, the lack of a plan to “enhance and protect value,” and a misaligned management compensation framework.
The investor plans to push for a board refreshment, advancing four individuals with experience in the energy sector as potential nominees for next year’s board elections. The nominees are Gregory Goff, Kaisa Hietala, Alexander Karsner, and Anders Runevad. Engine No. 1 said it hopes Exxon would consider its candidates for its 10-person board before the nomination window opens later in December.
Goff is the former chief executive of San Antonio-based refiner Andeavor; Hietala previously led the renewables business of Finnish refiner Neste Oyj; Karsner is a senior strategist at Alphabet’s innovation lab who served in the Energy Department under President George W. Bush; Runevad is the former CEO of Danish wind turbine manufacturer Vestas.
Engine No. 1’s letter, posted on a dedicated website, also urges Exxon to slash investment on projects that are unlikely to break even with sustained low oil and gas prices and focus on growth areas such as renewable energy. In addition, the activist wants Exxon to realign its management compensation with shareholder returns.
These measures should help Exxon preserve its dividend, which currently costs the company about $15 billion a year, the activist said.
Engine No. 1 holds a stake worth about $40 million in Exxon but has the backing of California State Teachers’ Retirement System, the second-largest pension fund in the U.S. and owner of a $300 million position.
The activist’s campaign will most likely depend on the reaction of large Exxon institutional investors such as Vanguard Group, BlackRock, and State Street. The three, which control nearly 20% of Exxon’s shares between them, have over the past years pledged to push companies to tackle climate change.
After reporting three straight quarterly losses, Exxon last week released a reduced spending outlook for the next five years and said it would focus on investing in only the most promising assets.
Exxon’s shares have lost 40% so far this year and were down 1.4% in pre-market trading on Monday. The company’s market capitalization stands at about $176 billion.