The News
ExxonMobil has faced down environmental activists and shareholder activists for decades — and is now enlisting its retail shareholders in the fight.
The Securities and Exchange Commission on Monday blessed Exxon’s plans to roll out a program that lets its mom-and-pop investors automatically vote their shares in favor of management’s recommendations. The company cited a desire to “level the playing field” between individual investors, who often find it’s not worth it to express their views in corporate elections, and investment firms with large megaphones. It’s the first program of its kind at a large company.
It’s notoriously hard for companies and activists to get the attention of retail shareholders — investors who directly own stock through their brokerage accounts, rather than through mutual funds or ETFs, which have historically voted on their behalf. About 40% of Exxon’s shareholder base individuals, only a quarter of them voted their shares in its most recent vote, the company said.
“Main Street investors matter, especially when their savings for a home, education, and retirement are at stake,” the company said.
The plan would mean that in a corporate fight — over board seats, takeovers, or the slew of social and environmental issues that regularly come up at the oil giant — shareholders who opt into Exxon’s plan would automatically side with management.
It would also blunt the weight and power of the big three institutional shareholders, Vanguard, BlackRock and State Street. Those firms have been rolling out “voter choice” programs that make it easier for individuals to vote their shares, but offer a variety of preference profiles, not simply Exxon’s management-friendly one.
Companies already spend millions of dollars fighting off shareholder proposals from activist groups like As You Sow and proxy fights from dissidents like Engine No. 1 — both of which have pursued Exxon.
Engine No. 1 spent $12.5 million on its proxy fight, Reuters reported, while Exxon expected to spend $35 million fending them off. Nelson Peltz’s proxy fight at Disney, which, like Exxon, has a high proportion of retail investors, cost a combined $70 million.
The impact of Exxon’s program and others like it will “depend on the effort expended by the company looking to provide largely apathetic retail shareholders with the ability to opt-in,” Bruce Goldfarb, CEO of proxy solicitation firm Okapi Partners told Semafor. “In a contest, management may have a real head start by implementing this process.”
In this article:
Rohan’s view
Activists are already grumbling at Exxon’s move, which they say will increase the cost of proxy fights and make it harder to push for change. Few shareholders who opt in will bother to opt back out mid-fight, so even low levels of adoption work in management’s favor. (Exxon said that the program will improve “shareholder feedback to the board,” although it’s unclear how automatically backing management will do that.)
“Getting retail opt-in now, or even having access via email later, is an incredible advantage, and it closes up potential cracks in the shareholder base that an activist might try to go after,” Longacre Square Partners governance chair Jessica McDougall, a former BlackRock stewardship executive, told Semafor.
But it doesn’t seem terribly likely that many other companies will look to do what Exxon has done. It’s expensive to build out the technology. And Exxon’s shareholder base is far more retail-heavy than most companies, and is filled with former executives and retirees who have long holding periods — 10 years, for some senior executives.
What it does signal, however, is that the SEC’s posture may be shifting further in favor of companies, rather than the balanced approach between shareholders and management it has historically struck.
Room for Disagreement
Reducing the influence of big passive investors is a good thing for the markets, some academics have argued. Increasingly, the Financial Times has noted, those investors are not always willing to hold management to account. To that end, anything that dilutes their influence and gets retail investors to pay more attention to otherwise perfunctory shareholder votes is a good thing.