At Exxon Mobil’s
annual shareholders’ assembly in Might, shareholders voted to exchange three board members with the nominees from activist hedge-fund Engine No. 1, proprietor of lower than 0.02% of the corporate’s shares. The hard-fought battle pitted a small funding fund created simply final 12 months in opposition to an American icon.
The fact is much less dramatic however way more vital for particular person traders. Engine No. 1 argued that its nominee will add distinctive expertise in profitable and worthwhile vitality trade transformations. The fund says that’s essential to reverse Exxon Mobil’s current financial slide and guarantee its future profitability. The fund stressed the significance of giving shareholders a task in director nominations. Regardless of the incumbent board’s opposition, Exxon Mobil’s shareholders agreed.
Environmentalists present the board election as a triumph for aggressive inexperienced activism — ecology at any price. Whereas an comprehensible rallying level for his or her marketing campaign, it’s tough to sq. with the rationales Engine No. 1 provided for its administrators or objectives of shareholders.
Politically minded observers question the massive index funds whose votes helped seal Engine No. 1’s victory. These critics say such influencers interact in advantage signaling, casting ballots in line with prevailing political agendas, reminiscent of environmentalism. Whereas believable, such shareholders additionally should weigh systemic dangers, and in reality it could be that getting ready for vitality transformation at Exxon Mobil will maximize shareholder worth.
But others see the result as a brand new mannequin of company management. CEOs are placed on discover that they will now not focus solely on enterprise however should tackle political and social points. The controversy on that is intense, however the deserves of the argument Engine No. 1 put forth at Exxon Mobil targeted on income and shareholder voice, not coverage preferences.
One other view invokes broader developments, reminiscent of shareholder proposals successful extra votes in recent times. On this view, shareholders are signaling to boards their elevated curiosity in having companies weigh in on contentious points, from board variety to company political lobbying. Though believable, this view displays the extra basic energy of shareholder voice than relative deserves of any explicit social or political problem, on which shareholders may be anticipated to divide simply as the overall inhabitants does.
Yet one more take appears to be like at how the competition will affect shareholder activism. It could turn out to be widespread apply for activists so as to add hot-button coverage points to an funding thesis, to draw extra votes. But whereas that works for coverage points tied to technique — reminiscent of ecology at vitality corporations — it’s more durable to tie board variety or lobbying limits to explicit company methods.
Essentially the most believable interpretation, and most reassuring to atypical traders, is one in all old style company governance. Shareholders elect boards, who set technique and appoint officers. When corporations carry out satisfactorily, administrators can count on to be re-elected. In any other case, count on change. That places the case of Exxon Mobil in a category with the 350 different election contests shareholders have mounted over the previous seven years, together with focusing on titans reminiscent of DuPont
Procter & Gamble
On this telling, the Exxon Mobil contest is much less dramatic than portrayed, however extra vital. The corporate’s shareholders selected change. The knowledge of their selection might be decided by the efficiency of those administrators. Serve Exxon Mobil and its shareholders as devoted stewards, and administrators can count on reelection; fail to ship shareholder returns and count on to be turned out of workplace. That’s company democracy, which continues to thrive even at Exxon Mobil.
Lawrence A. Cunningham is a professor at George Washington College, founding father of the Quality Shareholders Group, and writer, since 1997, of The Essays of Warren Buffett: Lessons for Corporate America. For updates on his analysis about high quality shareholders, sign up here.