Why the “Exxon Mobil Rebellion” is not a Wall Street Revolution
By GABRIEL MORAN | June 15, 2017
On May 31, the energy giant ExxonMobil held its annual shareholder meeting in Dallas. However, this meeting turned out to be more than the expected tedious affair of a carefully scripted discussion on the company’s operations and future.
ExxonMobil shareholders made the unprecedented move of passing a shareholder resolution requiring the company to generate a business impact report of the effect of global efforts to curb climate change on the company’s operations and business model. The resolution passed with 62.3% of shareholders voting in favor of the resolution. In an article by the Washington Post detailing the resolution, a shareholder insider claimed that the forces initiating the report were major financial advisory firms and fund managers.
Explicitly named in the article as voting for the resolution were Wall Street giants BlackRock, Vanguard and State Street. All three were known to have openly considered voting affirmatively on similar proposals.
Numerous articles have been written about this proxy resolution, characterizing the successful passage of the measure as a signal of the changing attitudes of the business world towards climate change. The truth of the situation, however, may be less romantic than it has been made out to be in the media. The vote was not the product of financial advisory firm's developing moral imperative, but instead was motivated by squabbling between shareholders and management and fueled by the pervasive profit motive.
Well-documented friction between shareholders and management could partly explain this shareholder insurrection. Most recently, ExxonMobil made moves to limit its shareholder’s abilities to nominate their own candidates for the board. Furthermore, there have been accusations that Exxon has tried to make it impossible for shareholders to communicate candidly with directors.
With the exit of former CEO and chairman Rex Tillerson from the company and the introduction of the fresh-faced Darren Woods, Exxon is in the midst of a six month period of vulnerability exacerbated by the declining value of Exxon stock. Since the ascendency of Darren Woods to the helm of Exxon as CEO, Exxon share prices dropped from $90.89 on January 3 to $82.93 as of June 12. Major shareholders, displeased with the returns of the company and seeing an opportunity to strong arm the management while swaying disappointed shareholders, took the opportunity to ram the resolution through.
To contrast the flagging Exxon stock, the Renewable Energy Industrial Index (RENIXX), a global stock index that tracks the thirty largest renewable energy companies, has shown vigorous growth since January. At face value, the passage of the proxy resolution indicates business involvement in the future of anti-climate change efforts in the face of fears regarding the future of the Paris Climate Accord. When dealt with falling share prices, shareholders likely used this gesture to assert some sway in a company that rarely loses shareholder resolutions. Posturing towards green energy shows economic promise for shareholders and offers an avenue for a corporate cash out.
The proxy resolution could likely be a precursor to an attempt by the larger shareholders to dump their positions in green energy companies. Black Rock and Vanguard hold 13% of Exxon’s stocks, valued at an estimated 43.6 billion dollars. Consequently, they wield considerable clout in the boardroom. Black Rock and Vanguard boast impressive portfolios with considerable investment in the renewable and clean energy sectors as well as the complementary technology associated with such industry.
This push for a business impact report could be interpreted as a move by shareholders to exert pressure on the management at Exxon to start to seriously pursue energy solutions outside of their traditional realm of petroleum and natural gas based energy. In the face of foreseeably stagnant oil prices in 2017 as forecasted by the Organization for Economic Co-operation and Development, it may not be such a hard sell to the Exxon executives to explore diverse energy sources. This provides a great opportunity for the major financial groups to cash out some of their holdings in an increasingly competitive energy market.
What should be taken away from the actions of the shareholders? In the short term, we see shareholders in a major energy firm looking to potentially explore cleaner energy options. Exxon is already one of the top producers of natural gas, one of the major clean energy sources that is being actively touted by other companies such as Royal Dutch Shell and British Petroleum as the energy source of the future.
This shift, however, was not brought about by altruistic shareholders at Exxon who are concerned about the future. Instead, this was a financial shift brought about by fluctuations in the market that show clean energy is attractive globally while oil demand by the barrel is dismal. This move is great PR for some of the larger shareholders, but it still reeks of an obvious motive; profit.
In other words, it is business as usual on Wall Street.