Congress Should Heed Warnings from Today’s Exxon Shareholder Meeting

By Natalia Renta, Senior Policy Counsel for Corporate Governance & Power

Today is Exxon’s annual shareholder meeting.  Regardless of the results of key votes, shareholders have made their voices heard by making it clear there will be consequences for corporations that, as the fossil fuels giant has, sue their own shareholders for daring to exercise their rights.

Members of Congress should be listening too as they consider curtailing shareholder rights through H.R. 4655 and H.R. 4767 — bills marked up by the House Financial Services Committee that are expected to come to a floor vote this summer.  Lawmakers – and not only corporate directors and officers – should heed this message and stop trying to do legislatively what Exxon is trying to achieve through the courts: insulate directors and executives of public companies from shareholder input and accountability.

Shareholders of public corporations have certain rights, including proposing resolutions to be voted on by fellow shareholders.  For decades, shareholders have exercised this right to bring issues related to corporate governance, tax practices, political spending, climate-related risks, racial and gender inequality, and more to the attention of boards and executives.

Corporate governance scholars Lucian Bebchuk and Scott Hirst note that “shareholder proposals have proven to be an effective stewardship tool for bringing about governance changes at large numbers of public companies.”  Other evaluations credit multiyear shareholder proposal campaigns with their ability to “flag potentially material risks at both the company and and financial market level,” “shape the governance landscape,” and “raise market awareness of material environmental, social, and governance (ESG) risks.”

Unsurprisingly, many public company directors and executives, not wanting to deal with shareholder concerns they disagree with, routinely try to avoid doing so.  Typically, they ask the Securities and Exchange Commission (SEC) to issue a “no action” letter, where the agency promises not to take action against them for excluding a particular proposal from the annual statement that public companies must issue ahead of the annual meetings.

This year, Exxon circumvented this process by taking the extreme step of suing two of its own shareholders – Arjuna Capital and Follow This – in a federal court in Texas to avoid having to deal with a proposal focused on carbon emissions.  The first official statement urging other shareholders to vote against two Exxon board members in order to register disapproval of this action referred to Exxon’s lawsuit against its shareholders as “akin to a ‘SLAPP suit,’” which stands for a “Strategic Lawsuit Against Public Participation” – a type of lawsuit filed by Goliaths to silence Davids.  The lawsuit risks torpedoing a way shareholders make their voices heard, as many shareholders do not have the resources to engage in expensive litigation to defend their rights.

The statement – issued by Wespath Benefits and Investments and Mercy Investment Services – was the first but very much not the last of its kind.  Nine state and local financial officers and several pension fund trustees followed suit, urging no votes on two Exxon board members: Executive Chair and CEO Darren Woods and Lead Independent Director and Nominating and Governance Committee Chair Joseph Hooley.  The California Public Employees’ Retirement System (CalPERS) – the largest pension fund in the country – is urging shareholders to vote no on all Exxon directors.  Other shareholders have publicly stated they will be voting no on some directors due (at least in significant part) to the lawsuit, including: the California State Teachers’ Retirement System (CalSTRS), New York State Common Retirement Fund, School Sisters of Notre Dame, RobecoSAM, United Church Funds, Brunel Pension Partnership Ltd., and Norges Bank Investment Management.

The two anti-shareholder rights bills moving through the House now would make Exxon’s extraordinary approach to evading accountability and shutting down shareholder voice the new law of the land.  H.R. 4655 would prohibit the SEC from mandating corporations include shareholder proposals or discussions of shareholder proposals in their proxy statements, undermining an important mechanism for ensuring shareholder voices are heard.  H.R. 4767, a compilation of eleven bills, would make it harder for shareholders to make proposals and easier for corporations to exclude them, and put a thumb on the scale in favor of directors and executives and against shareholders seeking to bring important issues to their attention.

These bills would give directors and senior executives even more tools to ignore input from shareholders and make decisions in their own individual short-term interests.  They are opposed by a broad coalition of investors, labor unions, and public interest groups, and members of Congress should vote against them.