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ExxonMobil has taken a hammer to climate activists’ shareholder proposals, marking a significant escalation in the battle between shareholders who file resolutions at annual meetings and executive managers.
For some shareholders, enough is enough. The Dutch pension fund PFZW yesterday said it had sold €2.8bn of its holdings in oil groups including Shell, BP and TotalEnergies because they were not doing enough to produce credible plans for the clean energy transition. Seven oil and gas companies, including Cosan, Galp and Neste, had “a compelling climate transition strategy” and would remain in the fund’s portfolio.
Divestment is one option for shareholders to protest companies’ transition plans; corporate governance provides other avenues to agitate for change while staying invested. But as I report today, shareholder rights are evolving, and actors from ExxonMobil to politicians in Italy are giving investors grief. Thanks for reading.
Shareholders fear ‘race to the bottom’ on corporate governance
Elon Musk is one of the world’s best-known corporate leaders, but he is not well known for graciousness in defeat.
Musk was fuming on his X social media site after a Delaware judge in January ruled against him and invalidated a $56bn pay package.
But Musk’s loss was a win for Tesla shareholders. The challenge to his pay was brought by a Tesla investor (and former heavy-metal drummer) who argued the company’s board misled investors about the terms of the pay deal.
The landmark ruling marked a big win for shareholders in a battle with the CEO over his cosy relationship with the board. But in other ways, shareholder rights are being tested around the world this year.
ExxonMobil’s highly unusual lawsuit challenging a shareholder proposal has triggered global alarm about investor rights. Exxon is arguing that two climate activists who filed a shareholder resolution at the oil major are not interested in shareholder returns, but are instead using corporate governance to campaign against global warming.
Institutional investors don’t see it that way, and fear the lawsuit could have a chilling effect on shareholder proposals that can be a tool to agitate for change at companies.
Exxon’s lawsuit “is very aggressive and we are concerned about the implications for shareholders rights”, Nicolai Tangen, chief executive of Norway’s $1.5tn oil fund, told my colleagues this week. The fund said it had supported similar types of proposals that Exxon was now challenging.
Shareholders are also feeling threatened not just by corporate management but also by government politicians. In Italy, lawmakers this week advanced legislation to juice up the country’s soporific public listings market, and international investors are furious they are being slighted in the process.
“We are concerned by proposals that weaken investor protections,” said Kerrie Waring, chief executive of the International Corporate Governance Network, which represents institutional investors. For example, the proposal might prevent shareholders from participating in annual general meetings, she told me this week. “The proposals suggest that exercising voting rights can only take place through a representative designated by the company,” which could in effect silence shareholders.
She is also worried about a broader use of “dual-class” shares as proposed by the Italian government. In a dual-class corporate structure, shareholders have unequal voting rights, which tends to favour founders or a small group of stakeholders instead of common investors. In 2023, one-quarter of all initial public offerings in the US included dual-class shares, the highest amount in two years.
Dual-class shares have also been an issue in the UK, where the London Stock Exchange has proposed governance reforms — also to revive the country’s listings market. These structures could be at odds with ordinary shareholders, Georgia Stewart, chief executive of fintech group Tumelo, told me.
“We would favour shareholders having more rights,” she said.
Attempts to bolster local listings markets risk a “race to the bottom” on corporate governance, Waring said.
“We believe the weakening of corporate governance standards is more likely to lower the reputation of these markets over time,” she said.
Shareholders’ power has generally improved since the spectacular collapse of Enron in 2001, Ofer Eldar, a professor at the University of California Berkeley, told me. Recent business failures at Theranos and FTX had largely spared retail investors.
And to date, there was no conclusive evidence “that dual-class turns out bad for shareholders”, and some suggested these companies performed better than other public firms, such as Meta or Alphabet, he said.
When stock markets are surging, shareholders tend to drop their guard on corporate governance.
But any high-profile corporate scandal and the pendulum is likely to swing quickly back to shareholders.
For another perspective on Elon Musk’s pay fight, I recommend Simon Kuper’s FT Magazine piece: Time to tax billionaires.