Climate activist investment funds Arjuna Capital and Follow This filed shareholder proposals with Exxon. If included in the proxy statement and approved by the shareholders, the proposal would have asked Exxon to “go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions ... and to summarize new plans, targets, and timetables.”
- The proposal addresses substantially the same subject matter as the 2022 and 2023 proposals – both of which were overwhelmingly rejected by our shareholders.
- This proposal was designed to do one thing – put us out of business. That’s literally what the proponents said.
- Arjuna Capital believes “Exxon should shrink.”
- Follow This says its proposals are “Trojan Horse” proposals designed to wind down the company’s business in oil and natural gas.
Activist shareholders (the vast majority being progressives advancing progressive policy goals) have long used the shareholder proposal rule to publicize their causes and seek to change corporate behavior. Since Gary Gensler became SAEC Chairman, the SEC has made it ever easier for progressive activists to get their proposals on proxy statements.
When an issuer wishes to exclude a proposal fro its proxy statement, the usual move is to ask the SEC for permission to do so via a no action letter request. But Gensler's SEC is widely regarded as leaning heavily on the activist side.
So Exxon decided to bypass the usual process and sued the activists in federal court:
- The intent of our lawsuit is simple – we want clarity on a process that has become ripe for abuse.
- The current process to get proxy proposals excluded is flawed.
- We believe activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value.
A few days ago, the LA Times business columnist Michael Hiltzik--who is undoubtedly the country's most progressive anti-business columnist charged with covering business--published a rant against Exxon's suit. Hilzick accuses Exxon of being the "world’s biggest corporate bully" for having to tried to defend its shareholders against a pair of activists whose interests are totally opposed to those of other Exxon shareholders. After all, the proponents themselves admitted is intended to “shrink” the company – which would ultimately hurt shareholders.
However, the SEC became political first when it changed its policy to explicitly allow proposals dealing with issues of “broad social significance” onto corporate ballots. Since that change, an unprecedented number of proposals dealing with Democratic policy priorities, namely climate and DEI matters, have been voted on and overwhelmingly rejected by shareholders.
Exxon’s ask of the court is simple and uncontroversial: protect our public markets by affirming the rules governing the shareholder proposal process that’s meant to empower shareholder and company collaboration instead of creating a company-funded forum for activist grandstanding.
Exxon's suit has survived a motion to dismiss on mootness grounds:
U.S. District Judge Mark Pittman ruled that Exxon could continue its case against Arjuna Capital, citing jurisdiction to hear the case over a U.S.-based firm. However, he said it could not pursue its claim against Follow This as it is Netherlands-based and outside the court's jurisdiction.
