ExxonMobil Incites System Stewardship

Exxon Sues its Shareholders

Earlier this year, ExxonMobil (XOM) sued two shareholders that had filed a climate-related proposal for the 2024 annual shareholders’ meeting. Instead of following the straightforward SEC process companies typically use to omit a proposal from the proxy, Exxon initiated litigation that would likely have been prohibitively expensive for the shareholders. Unlike Exxon, they didn’t have a vast corporate treasury to fund the litigation. Unsurprisingly, the shareholders withdrew the proposal.

Nevertheless, Exxon pressed forward with the case, incurring legal fees itself and imposing them on the two proponents. After multiple hearings, the firms finally extracted themselves from the case with promises never to bring the proposals back to the company (although Exxon may still appeal).

After Exxon’s lawsuit, but before its annual meeting, a number of significant investors called for votes against some or all of the Exxon directors in response to this tactic, focusing on its potential to silence the voice of company owners. Jay Hooley, the company’s lead independent director, ultimately received only 87% of the vote, which was remarkable given the absence of a formal “vote no” campaign.

Shareholders Use the Voice of Authentic System Stewardship

What we found most interesting about this dust-up was that many shareholders supported no votes for reasons that were clearly systemic, rather than being focused on Exxon alone. Instead of simply arguing the lawsuit reduced Exxon’s value, many shareholders raised concerns that Exxon’s attempts to silence proponents would weaken the system of corporate governance that protects value across portfolios. For diversified investors, a lawsuit that circumvents established procedures on shareholder engagement sets a dangerous precedent for all the U.S. public companies they own. As articulated by Illinois State Treasurer Michael Frerichs, who is responsible for Illinois state pension funds with US$23 billion in assets:

Ultimately, eligible shareholders have, and should always have, the right to file and vote on proposals. Companies filing lawsuits in response to disagreements with such proposals, rather than going through the SEC process, could silence shareholders who hold differing views than those of company management, which ultimately undermines the spirit of shareholder democracy and could result in a significant chilling effect. 

CalPERS, the largest state public pension fund in the United States with US$465 billion in assets, filed an exempt solicitation encouraging shareholders to vote against all members of the Exxon board of directors. In this short document, CalPERS explained the lawsuit may undermine shareholder rights and “have a chilling effect on future shareowner proposals in the United States.” CalPERS’ focus on the lawsuit’s effect on shareholders generally, rather than Exxon itself, expresses concern with the broad portfolio impact of Exxon’s tactics, showing stewardship need not be confined to the impact of company decisions on the company itself. (This is precisely the type of stewardship described in the two law review articles that were cited in the Meta decision, as described above.)

In addition, financial officers with responsibility for retirement plans from New York City, California, Connecticut, Nevada, Oregon, Vermont, Washington, and Maryland, along with trustees from other significant retirement funds, added to the clamor by calling upon major asset managers to vote against the reelection of Hooley and CEO Darren Woods. This group also focused on the broad impact of Exxon’s actions across portfolios, stating, “We believe that ExxonMobil’s decision to bypass the SEC’s no-action process is being used to set the stage for other companies, who may likewise opt for litigation over actually engaging their investors.”

Implications for Future Stewardship

At The Shareholder Commons, we believe shareholders can make stronger, more effective arguments for responsible corporate decision-making by expanding beyond the “ESG integration” argument that responsible decisions increase company value. While that can often be true, it’s also true that companies may seek to increase their own value by externalizing costs. Those costs can drag down critical systems that support the long-term value of diversified portfolios. Shareholders are often reluctant to articulate this divergence of interest between companies and their diversified shareholders.

Exxon’s lawsuit against shareholder proposals is a clear example of this phenomenon. The company may well believe climate proposals threaten its own financial returns, but shareholders immediately saw the threat its litigation tactics posed to their entire portfolios by silencing a traditional avenue of shareholder voice in corporate governance. We hope these shareholders will continue to see the value of systemic, portfolio-value arguments in their stewardship programs in years to come.