Yahoo Finance Exxon stockholders side with oil giant in feud with CalPERS and activist investors
Most Exxon Mobil (XOM) stockholders sided Wednesday with the company in its feud with activist investors and the nation's biggest public pension fund, voting to retain CEO Darren Woods and 12 other current directors on the oil giant’s board.
The support for current directors was 95% of outstanding shares cast, although that was down slightly from 96% last year.
Support for individual directors ranged from 87% to 98%, which was also down slightly from last year’s range of 91% to 99%.
Shareholders also voted down environmental proposals that asked Exxon to revisit executive pay incentives for greenhouse gas emissions and expand its reporting on plastic production.
"Today our investors sent a powerful message that rules and value-creation matter,” said an Exxon Mobil spokesperson in an email to Yahoo Finance. “Their vote signals a belief that we are on the right track.”
The vote marked an important test of the power balance between companies and activist investors.
Exxon Mobil faced an attempted revolt led by the California Public Employees' Retirement System (CalPERS), which has a $1 billion stake in the company and oversees the country's largest public pension fund.
CalPERS recommended that stakeholders use their votes during the company's annual meeting to unseat Woods and the entire board because of a refusal to drop a lawsuit filed in January against activist investors Follow This and Arjuna Capital.
Exxon sued to block the activists’ shareholder proposal to adopt greenhouse gas emission reduction goals known as “Scope 3” targets that have been adopted by Exxon’s corporate competitors.
Exxon pressed forward with the case even after activists withdrew their proposal, arguing the need for greater clarity around shareholders' ability to resubmit proposals.
"We expect the activist crowd will try and claim victory on today’s vote, but common sense should tell you otherwise in light of the large margin of the loss," the Exxon Mobil spokesperson said.
CalPERS CEO Marcie Frost said in a statement that "CalPERS did not take this vote lightly, but the significance of what's at stake can’t be understated."
"ExxonMobil’s lawsuit threatens to silence shareholders everywhere by stripping away their rights and role in improving a company’s bottom line."
A vote to retain the board ratifies the view that Exxon is about generating returns within the law and its resistance to the environmental proposals is consistent with that goal, said Eric Talley, an economist and law professor at Columbia Law School.
The margins in these votes matter, he added, noting that a more significant drop in support would send a message to Exxon that it needs to take more imminent action to address shareholder concerns.
"If you get reelected with kind of a bad aftertaste, in stockholders' view, I think that does put you on notice that this could happen again next time you're up for election," Talley said before the Exxon votes were counted.
Exxon's ongoing lawsuit sends a message to future activists that the company will take a hardball approach, Talley said.
In a post submitted to the Financial Times, Exxon's CEO said the suit was meant to bring clarity to SEC rules that govern how many times shareholders can submit repeat proposals.
Woods said the defendants' proposal, voted down twice and submitted for a third consecutive year, amounted to a request to "limit sales and allow others to meet the world’s energy demand."
In essence, Exxon's suit preempts SEC rules that allow for shareholders with a certain level of support to submit proposals three times.
"It's almost like taking a chainsaw to cut a birthday cake," Talley said about Exxon's approach to filing suit before letting the SEC's regulatory process play out. "That effectively unlocks a Pandora's box of going straight to court for anything that you don't like."
"It's clear that what they are effectively trying to do is play the long game here," Talley added.
Last week, a federal district judge in Texas denied a request from Follow This and Arjuna to dismiss the case.
However, the judge dismissed Follow This from the case, based on his conclusion that Exxon lacked jurisdiction over the Netherlands-based organization.
Frost and CalPERS board president Theresa Taylor argued in the runup to Wednesday's vote that Exxon's directors were allowing Woods to "pursue a reckless and destructive effort."
In a letter, they said the executives were improperly using US courts to diminish shareholder rights. The SEC, and not judges, they added, should decide the fate of disputed shareholder resolutions.
In February, after Arjuna and Follow This withdrew their proposal, Natasha Lamb, chief investment officer at Arjuna Capital, said Exxon had no basis for continuing its attack.
“We’re disappointed that Exxon is circumventing the SEC’s shareholder proposal process by proceeding directly to litigation in federal court which will result in silencing investors that voice climate-risk concerns," Lamb said.
During Wednesday's shareholder meeting Woods said Exxon is working to decrease carbon emissions and emphasized limitations on decarbonization.
"Today, the solutions needed to simultaneously reduce energy poverty and emissions don't exist at scale," Woods said. "The world needs government, academia, and the private sector to fully leverage their respective capabilities to develop more solutions."
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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