It was not long ago when Exxon Mobil Corp., stylized as ExxonMobil, was the most valuable company in the world. As recently as 2013, Exxon’s market value topped that of every single other company on the planet. Of course, it was also around that time when crude oil was last trading above $100 per barrel.
Exxon’s star has fallen in recent years. The fossil fuel giant imprudently bet big on natural gas at the market peak. Compared to competitors, Exxon was late to the American shale oil boom. ExxonMobil’s stock was booted from the Dow Jones Industrial Average, a benchmark index it had been a part of for 92 years. In the spring of 2020, the company saw its first quarterly loss in decades, and its market value has cratered by $267 billion from its historic highs.
Yet, though Exxon has suffered many setbacks in the last half-decade, it remains a huge company with tremendous influence in the energy sector and beyond. Thus, many industry insiders scoffed when a comparatively tiny hedge fund called Engine No. 1 announced plans to take on the ExxonMobil board and force the oil and gas giant to reform its approach to climate change.
In advance of the ExxonMobil annual meeting of shareholders, Engine No. 1 and Exxon exchanged a series of increasingly barbed communications regarding carbon emissions and the broader direction of the company surrounding environmental issues. Engine No. 1 claimed to be addressing the concern among investors for companies to actively tackle the long-term business risks of climate change. The hedge fund sought to have Exxon “gradually but purposefully reposition their businesses for the energy transition” away from fossil fuels and toward more sustainable forms of energy production. For its part, ExxonMobil claimed to be reducing its own emissions consistent with the goals of the Paris Agreement and claimed to have made attempts to reach a resolution with Engine No. 1. The exchange of messages culminated with Engine No. 1 making four nominations to Exxon’s 12-person board of directors.
Following a vote on May 26, eight of Exxon’s nominees to its board of directors, including CEO Darren Woods, were re-elected. But two of Engine No. 1’s nominees were also elected to the board. Reportedly in a bid to stave off further losses to Engine No. 1, Exxon was forced to adjourn its annual shareholder meeting for an hour. As of this writing, the vote on the remaining two seats is still too close to call.
Even with only two board positions firmly in the hands of Engine No. 1, the early election results have sent a tremor through corporate boardrooms nationwide. Engine No. 1 owns just 0.02 percent of Exxon, but was able to secure enough support from other investors, including from Exxon’s second largest shareholder BlackRock, to oust entrenched board members in favor of candidates with leadership experience in the field of green energy innovation. That Engine No. 1 was able to win any board seats at all starkly demonstrates that anyone who can harness investor frustrations with climate change inaction can wield real power in the boardroom.
Engine No. 1 is a six-month-old hedge fund which manages a paltry (paltry in the world of financial capital, at least) $250 million in assets. ExxonMobil is the one-time most valuable company in the world and, even after getting a bit battered in recent years, remains the largest direct descendant of business titan John D. Rockefeller’s Standard Oil. Exxon’s current value is roughly $250 billion, one-hundred times the amount managed by the entity whose activist investing just garnered it at least two seats on Exxon’s board. In the wake of the election, Exxon’s CEO Darren Woods promised to welcome the new members of the board of directors and said he looked forward to hearing their insights and perspectives. No doubt this will lead to some changes at Exxon. But even more broadly, the recent Exxon board election is a warning flare sent up to any corporations that still seek to discount climate impacts going forward. If they do not see the dramatic change they seek, climate-conscious funds just might have the investor support they need to shake things up at any company.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at email@example.com.