ExxonMobil shareholders voted Wednesday to install at least two new independent directors to the company’s board, a resounding defeat for Chief Executive Darren Woods and a ratification of shareholders’ unhappiness with the way the company had been addressing climate change and its lagging financial performance.
The votes were part of a day of reckoning for an oil and gas industry already struggling over how to deal with climate change. In Europe, a Dutch court ordered Royal Dutch Shell, considered one of the more forward-thinking companies in the industry, to make deeper-than-planned cuts in greenhouse gas emissions. And in the United States, Chevron lost a shareholder vote directing the company to take into account its customers’ emissions when planning reductions.
The balloting at the storied oil giant ExxonMobil “sends an unmistakable signal that climate action is a financial imperative, and leading investors know it and are demanding change,” said Fred Krupp, president of the Environmental Defense Fund. “This is a watershed moment for the oil and gas industry. It’s no longer tenable for companies like ExxonMobil to defy calls to align their businesses with decarbonizing the economy.”
Woods tried to muster votes until the last minute but failed to win backing for all of his proposed directors. In addition to the election of two new independent directors, the votes over two others from the dissident slate were too close to call.
Both sides spent tens of millions of dollars on the hard-fought campaign, an indication of the high stakes involved. Though the new directors would be a minority of a 12-person board, the top executives at ExxonMobil and many other corporations are unaccustomed to being challenged by their own handpicked directors.
At one point during the meeting, ExxonMobil declared a one-hour recess, a move many believed reflected ongoing negotiations over votes. “Stopping the vote was a pretty desperate move and usually portends a result the establishment does not want to happen,” said a former oil refining executive with experience at annual meetings. Exxon said it was counting a late surge of ballots.
The proxy campaign that rocked the 130-year-old oil behemoth was led by a young, relatively small hedge fund called Engine No. 1. But it quickly won the backing of the three biggest U.S. pension funds, the two biggest advisory services, and at least one of the three biggest fund managers. The three fund managers – BlackRock, Vanguard and State Street – hold more than 20% of the ExxonMobil’s shares.
BlackRock, the second largest Exxon shareholder, said Wednesday that it cast its votes for three of the four independent directors. It wasn’t clear what decision Vanguard and State Street had made.
Charlie Penner, managing member and head of active engagement at Engine No. 1, said on CNBC Wednesday that other investors had told him that ExxonMobil directors were calling to try to get them to change their votes, which is permissible up until the end of voting. Penner said it gave the vote a “very banana republic feel” and was “beneath a company like ExxonMobil or, frankly, any company.”
“Investors are waking up,” Anne Simpson, managing investment director for board governance and sustainability at the California Public Employees’ Retirement System, said in the run-up to the vote. “The sleeping giant maybe is stirring.”
Chevron investors also flexed their muscle on Wednesday, casting 61% of shares in favor of a proposal asking the oil major to cut its total greenhouse gas emissions, including customers’ emissions, a category known as “Scope 3,” in addition to its own operations and supply chains, according to a preliminary count announced by Chevron at its annual general meeting.
Separately, a Dutch court on Wednesday ordered Royal Dutch Shell to cut its carbon emissions by 45% by 2030 compared to 2019 levels in a landmark case brought by climate activist groups. The Hague District Court ruled that the Anglo-Dutch energy firm has a duty to care about reducing greenhouse gas emissions and that its current reduction plans were not concrete enough.
The decision could set a precedent for similar cases against polluting multinationals – including ExxonMobil, one of the biggest corporate greenhouse gas emitters in the world. And the ruling marked a new assertion of judicial authority in a climate matter.
The ExxonMobil annual meeting was closely watched. In the six months since Engine No. 1 launched its campaign, ExxonMobil has steered its policy toward the rebel shareholders, launching a new low-carbon fuel division and reshuffling a couple of directors. It also unveiled a plan for a massive carbon capture and storage project in the Houston ship channel, but company officials said the federal government would have to finance it with subsidies.
But it wasn’t enough to stop the rebellion. In the run-up to the meeting, California Public Employees’ Retirement System filed a statement saying that “ExxonMobil’s shareholders have a first-of-its-kind opportunity to drive systemic change at the company by voting in support of the full alternate slate of directors to strengthen the board and contribute to the sustainable value of their investments.”
The brawl over directors was one of the most sensitive points. Woods, responding to criticism that the board lacked anyone with expertise in the energy business, reached out for a new director who has experience with a state-owned company in Malaysia.
The Exxon chief executive disparaged the four directors Engine No. 1 put forward, saying they lacked top executive experience or energy experience. Yet the Engine No. 1 slate included two former chief executives and deep experience in the energy business.
The two who won election were Gregory Goff, former chief executive of the oil refining company Andeavor, and Kaisa Hietala, who began her career in oil and gas exploration and crude oil trading and who later served as the head of renewable diesel and jet fuel at Neste, a Finnish petroleum refining and marketing company, through 2019.
Many industry analysts were puzzled that ExxonMobil vigorously opposed them.
Goff had been named an outstanding chief executive by a Harvard Business School group. Stephen Brown, a former senior executive at Andeavor, was irked by Exxon’s disparagement of Goff. “I was fortunate enough to get to work with him closely on a number of things, and what he taught me is invaluable to this day,” Brown said. “Exxon should be so lucky to get someone of his caliber.”
The results were too close to call for the other two vying for independent spots on the ExxonMobil board. They were Alexander Karsner, a former Energy Department official for research and development and now a senior strategist at X, the innovation lab owned by Google parent company Alphabet, and Anders Runevad, former chief executive of Danish wind turbine maker Vestas Wind Systems.
Despite the tumult over the board posts, the price of ExxonMobil stock rose 1.17 percent to $58.94 a share Wednesday, a threshold it first crossed in late 2005.
BlackRock, which has used its clout to nudge companies on climate issues, voted for Karsner, Goff and Hietala, as well as Woods and Kenneth Frazier. It joined a majority of shareholders voting for two resolutions for greater transparency for lobbying payments made directly and through trade associations.
One of the ardent supporters of the Engine No. 1 slate said that the hedge fund found eager supporters because of the widening realization that climate change is a financial issue.
“Investors are no longer standing on the sidelines hoping for the best,” said Simpson. “Climate change is a financial risk, and as fiduciaries we need to ensure that boards are not just independent and diverse, but climate competent.”
Chris James, founder of Engine No. 1, whose stake in ExxonMobil came to about 0.02 percent of the company, said the campaign had “redefined what is possible.”
“I think we need to restore trust, and the best way to restore trust is through transparency. And with transparency comes accountability,” James said. “Our argument and what really resonated was that this was an economic argument. You cannot separate economics from impacts.”