Investors who utilize shareholder resolutions as a lever to influence companies on environmental and social fronts express unease over Exxon Mobil’s recent legal maneuver, which sidesteps U.S. regulatory oversight. The move has sparked apprehensions that the influence wielded by activist investors may be jeopardized.
Amid the tenure of President Joe Biden’s appointees, the Securities and Exchange Commission (SEC) has heightened the difficulty for companies to thwart resolutions from progressing to a shareholder vote by appealing to the regulator. Exxon, however, took a different route, filing a lawsuit against two shareholders who proposed a resolution urging the company to establish new targets for reducing greenhouse gas emissions.
In its legal action, Exxon contends that the investors are manipulating the process to advance their agenda of downsizing its fossil fuels business rather than enhancing shareholder value. The company cites a significant rejection by 90% of its shareholders to a similar proposal last year.
The top U.S. oil producer aims for a ruling by March 19, seeking to expedite the case before its annual shareholder meeting in May. Concerns arise that such legal actions could deter smaller investors lacking resources to engage in protracted legal battles against corporations like Exxon.
Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR), representing religious investors and socially-aware asset managers, voices concern about potential chilling effects on small investors. Shareholder resolutions, though not legally binding, often influence companies, prompting responsiveness to investors’ concerns.
Amy Borrus, executive director of the Council of Institutional Investors, stresses the vital role resolutions play in allowing investors to express views to a company’s management, board, and fellow investors. If Exxon prevails, other companies might adopt a similar legal strategy, creating a ripple effect.
Exxon’s lawsuit unfolds against a backdrop of increasing resolutions, with 889 filed during the 2023 proxy season, the highest since 2016. The SEC’s policy change in 2021, making it harder for companies to block resolutions, emboldened activist shareholders.
Mark Uyeda, an SEC commissioner, acknowledges the agency’s current approach may have deterred companies from seeking help. The perception of the SEC as a fair arbiter might have changed due to recent policy adjustments.
Exxon argues that the SEC’s rules need enforcement to prevent abuse of the system. The company emphasizes that its lawsuit is specific to the resolution on greenhouse gas emissions, and it remains engaged with proponents of other shareholder resolutions.
The resolution in question faces uncertain success in a vote, as evidenced by the limited support for similar resolutions by Netherlands-based environmental activist group Follow This at other major oil companies. The legal landscape, particularly the conservative majority in the 5th U.S. Circuit Court of Appeals, adds an additional layer of uncertainty to the unfolding situation.
In this intricate corporate and legal chess match, the implications extend beyond Exxon Mobil, capturing the broader landscape of shareholder activism and corporate governance.
