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Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Explaining ExxonMobil’s Pre-Emptive Attack on Shareholder Activists

  • ExxonMobil isn’t taking any chances in letting activist shareholders propose a resolution to speed up emission reduction plans.
  • ExxonMobil went to a Federal court in Texas to prevent the activists from getting their resolution on the ballot.
  • ExxonMobil argued that the resolution “does not seek to improve  ExxonMobil’s economic performance or create shareholder value.”

We should not have been surprised. Not in an era when people only watch MSNBC or Fox and college students avoid classes that might trigger discomfort by exposing them to beliefs contrary to their own. It happens in the oil business, too.

Two activist investors, in December, filed a stockholder resolution for vote at the 2024 ExxonMobil annual meeting to encourage management to speed up its carbon emission reduction plans and expand the scope of emissions covered by its reduction plan. It’s a non-binding resolution. Meaning the company’s directors can ignore it. But the directors do not want to merely ignore the resolution. They want to quash it before stockholders even get a chance to vote. The stockholders may own the company but that doesn’t give them the right to say anything that the top brass do not want to hear. 

ExxonMobil says the resolution is too much like previous resolutions that failed to gain a majority. (Stockholders, then, don’t get an opportunity to change their minds?) Not that we would be surprised to see the resolution fail. However, ExxonMobil isn’t taking any chances. It went to a Federal court in Texas to prevent the activists from getting their resolution on the ballot. It claimed federal law prohibits resolutions dealing with “ordinary business operations.” Experts said that ExxonMobil hopes that the courts will take a less friendly view of shareholder resolutions than the SEC. A court decision in favor of the company could put the kibosh on future stockholder resolutions of all sorts.  Related: China’s Oil Giant CNOOC Raises Output and Capex Targets to Record Highs

ExxonMobil also argues that the shareholder proposal  “does not seek to improve  ExxonMobil’s economic performance or create shareholder value.” That statement implies that the company’s management has a splendid record of value creation that might be sabotaged by these ignorant activists. On the contrary, looking at total returns over both 10 and 15 year periods, ExxonMobil’s stock underperformed its peers in the oil business and underperformed the market by an embarrassingly large margin. Roughly speaking, ExxonMobil shareholders earned 3-4% a year, oil stocks as a whole 4-5% and the market 12-15% per year. With a record like that, you would think that ExxonMobil might want some outside advice. 

Average Annual Returns on Share Investment (%)

10 years15 years
Oil Majors3.75.4
Total market (S&P 500)11.714.6

What accounts for ExxonMobil management’s determination to keep the shareholder proposal off the ballot? Not being mind readers, we can only speculate.  Here are some possibilities. 1) The ExxonMobil brass realize that decarbonization is not good for the company’s prospects and they don’t want anyone prodding them to act faster. That is the simplest explanation. 2) The lawsuit is part of a right wing effort to weaken regulation, and ExxonMobil is doing its part. A bit conspiratorial? 3) The lawsuit is an attempt to stall until Donald Trump wins reelection, after which the SEC will be less solicitous of activist shareholder desires. Probably something they think about. 4)  ExxonMobil managers and directors don’t like being told what to do, especially by meddlesome people from outside the oil patch. We doubt anyone would say this in public but we’d bet industry CEOs talk this way to each other, out of earshot of outside directors and shareholders of course.

Does this minor tussle between senior management and activist shareholders really mean anything? The stockholder resolution, if presented to all shareholders, probably would have lost. And ExxonMobil’s management would have continued its current policies. Obstructing a  resolution (that would have lost anyway) from appearing before all shareholders makes the company look defensive, petty, or even fearful. What is ExxonMobil afraid of if it lets the shareholders vote? They do own the company, don’t they? When looking at this lawsuit, we suggest that you eschew analyses of strategy and motivations. The lawsuit, itself, is not important, other than indicating that ExxonMobil intends to march ahead doing what it has always done, regardless of pressures to do otherwise. Take that as good or bad, depending on your preferences. 

By Leonard Hyman and William Tilles for Oilprice.com


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