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Wall Street’s top regulator has awarded ExxonMobil a powerful tool to short-circuit shareholder activism proposals, in the wake of campaigns targeting the oil major over climate change, governance and executive pay.
The Securities and Exchange Commission on Monday issued a “no action” letter indicating its staff would not block a plan by Exxon to build a system before next year’s proxy season that will automate voting by retail shareholders in line with board of director positions.
Under Exxon’s proposal, retail investors who opt into the system would have their votes counted in favour of management unless they choose to opt out. The move comes four years after the company’s stunning defeat in a proxy battle at the hands of a tiny hedge fund seeking to reduce its carbon footprint.
Governance experts said this would provide Exxon management with a strong base of shareholder support at annual meetings, which would make it more difficult for activists to win votes on their proposals. The SEC’s guidance is likely to encourage other US companies to establish similar platforms, a trend that could reduce the influence of proxy advisers and activists to exert influence over votes, they said.
Exxon said this would allow the 40 per cent of its shareholder base who are retail investors “to be heard, and be counted”, noting that three-quarters of them typically do not vote due to the time it takes to read all shareholder proposals.
“This is a gap we want to close . . . Activist groups often exploit this gap to push political goals at the expense of shareholder value,” Exxon said in a statement, adding that its system would be “an important step forward for American shareholder democracy”.
Activist investors have proposed numerous shareholder proposals urging Exxon management to do more to tackle climate change in recent years, prompting the company to seek ways to blunt their influence.
In 2021 Exxon suffered a bruising defeat at the hands of Engine No. 1, a hedge fund that won three seats on the company’s board following a campaign arguing the oil major faced an “existential business risk” by pinning its future to fossil fuels.
Last year the oil major sued activist investors Follow This and Arjuna Capital in a high-profile legal case that green groups and some shareholders say was an attempt to “silence them”.
The lawsuit against Follow This was dismissed by a Texas judge on jurisdictional grounds, as the activist group is based in the Netherlands. The judge later dismissed the case against Arjuna when the fund agreed not to refile climate shareholder petitions at the company.
Institutional investors such as Vanguard already offer their clients automated voting systems with choices, including a “vote with the board” option. Some activist groups offer similar services that recruit shareholders and vote their shares in alignment with their progressive agenda.
Until now the SEC has not granted companies the right to set up this type of automated pro-management voting system over concerns it would concentrate too much power in the hands of board directors and reduce scrutiny.
Exxon’s push to establish a pro-management retail voting platform could dilute activist investor power, according to corporate governance experts, who noted the plan coincided with a push by Republican lawmakers to limit environmental, social and governance activism.
“[This move] could have a significant effect on the influence that the big indexers and proxy advisers have,” said Lawrence Cunningham, director of the Weinberg Center for Corporate Governance at the University of Delaware. “A movement like this could reduce the power that they have been exercising.”
“Retail tends to vote with management, so if there are challengers or dissidents, retail participation is likely to skew in your favour,” said Ann Lipton, a law professor at the University of Colorado, adding that retail shareholders’ voting turnout was typically low.
In its letter, the SEC said it noted shareholders participating in Exxon’s “retail voting programme” would pay no additional costs and receive an annual reminder of their ability to opt out and cancel their standing voting instruction.
Davis Polk, the law firm which advised Exxon on the voting platform, said the US proxy voting system had long been in need of updating, especially to promote retail shareholder participation, and the current administration was prepared to allow creative solutions to bring retail shareholders into the voting system.
“This could be very impactful for Exxon and other companies with a lot of retail shareholders because if they can attract enough investors to sign up to the platform, then they have higher retail participation for future shareholder meetings unless they later choose to opt out or override the management vote at a meeting,” said Louis Goldberg, a partner at Davis Polk.
The participation of individual investors has been crucial in large proxy contests in recent years as an activist defence tactic.
Disney last year faced a challenge to its board from activist investor Nelson Peltz. The company mobilised its large retail shareholder base, including releasing a video with Disney’s animated characters that urged individual investors to vote with management. In the end, three-quarters of its retail shareholders voted for Disney’s nominees.
Follow This said Exxon’s new voting platform appeared to be another attempt to “suppress the voices of critical investors”, in the aftermath of the oil group’s lawsuit against shareholders in 2024.
“Obviously, the goal is to suppress votes for change as Exxon wants to continue with fossil fuels for as long as possible. This will not go down well with institutional investors who will lose influence as owners of the company,” said Mark van Baal, founder of the Dutch activist investor.
