Nell Minow is Vice Chair of ValueEdge Advisors. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); Companies Should Maximize Shareholder Welfare Not Market Value by Oliver Hart and Luigi Zingales (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Max M. Schanzenbach and Robert H. Sitkoff (discussed on the Forum here).
Exxon-Mobil spent $35 million, added new directors, and made promises to do better, all in an effort to defeat the dissident slate nominated by activist fund Engine No. 1. It failed, and, at this writing, Exxon-Mobil has lost at least two seats on the board of directors and votes for two others were still being calculated. The challengers, who spent $30 million, making this the most expensive proxy fight ever, are really the little Engine that could; with only a tiny .002 percent of the stock, they were able to succeed by making an incontrovertible business case for change, helped, no doubt, by Exxon-Mobil’s poor performance, with losses last year of $22 billion, its worst performance in forty years, and by nominating four highly qualified candidates. With the support of the major proxy advisory firms and institutional investors like BlackRock, CalPERS, and CalSTRS, Engine No. 1 candidates defeated those nominated by the board.
This David and Goliath victory reflects investor concerns about the viability of fossil fuel companies. But it also reflects broader investor frustration with inadequate oversight by boards of directors. The most important lesson for corporate boards and executives is that this is not a singular event; it is the beginning of a fundamental change in the way that investors push back on portfolio companies. From now on, activist investors do not have to be Carl Icahn-types with major stakes in order to succeed.
