In the short history of shareholder activism, the humiliation of the board of ExxonMobil on Wednesday takes some beating. The directors were comprehensively out-played by an environmentally minded hedge fund formed only six months ago that arrived with a stake of only 0.02%.
Despite emerging almost from nowhere, Engine No. 1, the upstart fund, succeeded in persuading other shareholders to vote two of its four candidates on to the board; a third newcomer could follow when the “too close to call” tallies are finally counted. The campaigning achievement is remarkable.
How did Engine do it? There are probably three lessons here for climate campaigners. First, set your arguments within a financial context. Exxon’s shares have performed woefully in recent years even in an era of rising demand for oil and gas. So how, asked the Engineers, did the board expect to do better in a decarbonising world without a carbon-reduction strategy? The debate was cast a matter of “existential risk”.
Second, the alternative directors were serious candidates. The four didn’t merely bring expertise in renewables, but offered long experience in the oil and gas industry – indeed, more experience than some of Exxon’s own directors. The slate was not a collection of mavericks.
Third, the clincher: turn the spotlight on the big investment houses sitting on piles of passively managed money. Pitch the struggle as a test of their cuddly “stewardship” boasts. BlackRock ended up voting for three of the Engine candidates, and Vanguard for two. Between them, the two asset managers control about 15% of Exxon. If you can get that block on your side, you have a real shot at winning.
There are loose ends and unresolved plot-lines, of course. Can two or three fresh faces in Exxon’s boardroom, preaching a gospel of transition to a lower carbon future, make a difference? They will still be in a minority and Engine, note, did not call for the sacking of Exxon’s chief executive, Darren Woods. Any immediate change of strategic course for the supertanker may be minor.
Also consider events elsewhere on Wednesday – a rebellion at Chevron in favour of an activist proposal to force the group to cut its carbon emissions; and an order by a court in The Hague to make Royal Dutch Shell do the same.
If Big Oil cuts production faster than previously anticipated, would oil prices rise, other factors being equal? And would the real beneficiaries therefore be the likes of Aramco in Saudi Arabia and Gazprom in Russia, companies well beyond the reach of activist shareholders? Or would the rollout of lower-cost renewables be accelerated? In a wider context, the route to meeting Paris climate targets does not appear any clearer.
But the narrow meaning of Engine’s success at Exxon is at least easy to interpret: an obstinate Big Oil company now knows that the makeup of its board can be changed against its will. That is a genuinely new development.
JD Group still plays the bonus game
If a company took pandemic support from the government, it should not pay bonuses to executives in the same financial year. That is a simple principle to understand, and was also the gist of the advice from the Investment Association a few months ago. Where furlough sums were accepted, the club of big City fund managers “generally would not expect the payment of any annual bonuses … unless there are truly exceptional circumstances”.
So what’s JD Group’s circumstance that makes it think it’s fine to pay an annual bonus to boss Peter Cowgill while collecting £86m of furlough money from the public purse? Being generous, one might not dispute the £3m Cowgill got from a scheme that pre-dated the pandemic. But there is no excuse for the £1.3m that came via a regular annual award.
The sum would have been £1.7m were it not for “the current climate”, says the remuneration report weakly. Come on, the figure should have been zero if you’re not repaying the furlough cash after an excellent year for profits.
JD’s exceptionalism, one assumes, is its 55%-ownership by the Pentland Group, meaning it doesn’t have to fret too much about other shareholders’ views. A FTSE 100 company should still be able to see the wider picture.