ExxonMobil’s Lawsuit Against its Shareholders: A Cautionary Tale

On January 21, ExxonMobil filed a case in the Fifth Circuit Court in Dallas, Texas suing two shareholders, Arjuna Capital and Netherlands-based FollowThis, who had dared to file a proposal requesting that the company do more to reduce its greenhouse gas (GHG) emissions to help counter the growing climate crisis. The lawsuit set in motion months of investor opposition including a widely-supported investor campaign against Lead Director Joseph Hooley and CEO/Director Darren Woods. The response to the lawsuit was global in scope and included a number of sizeable institutional investors who viewed the unprecedented invocation of the courts to block a shareholder proposal as unnecessarily punitive and akin to a “SLAPP” suit meant to silence shareholder dissent on climate risk and ward off future shareholder filings. Most concerning to investors was the company’s flagrant “end run” around the Securities and Exchange Commission (SEC), the federal regulator charged with protecting investor interests and adjudicating proxy disputes. The lawsuit quickly became a lightning rod for the attack on shareholder rights, raising the specter of future lawsuits against shareholder proponents seeking more information and improved corporate policies to better manage climate risk.

ExxonMobil’s suit was accompanied by a seldom-seen string of ad hominem attacks against shareholder proponents seeking to cast them as fringe investors “with an extreme agenda” out to sabotage the financial success of the company. These attacks were not limited to legal exchanges but soon became part of an ongoing campaign to distort the intentions of investors legitimately concerned about climate risk, including mischaracterizations in ExxonMobil’s proxy statement, solicitations on the SEC’s Edgar website, attacks on investors in the press and statements by CEO Woods during the annual stockholder meeting. This was no straightforward action to challenge a proposal; it was an expensive legal and public relations campaign meant to undermine both shareholders’ access to the corporate proxy and the SEC’s authority to adjudicate proxy disputes.  When the Exxon Mobil proxy statement was published, it included the same confrontational language and a series of erroneous statements. In response, ICCR filed a solicitation via Edgar to correct the record.

It is also important to carefully analyze the flawed arguments ExxonMobil uses in its lawsuit. The first is the attack on the legitimacy of the shareholder proponents. While their holdings may be more modest than some, Arjuna Capital and FollowThis have the same right to avail themselves of the SEC’s 14a-8 process to file proposals that other investors use. ExxonMobil argues that the proponents do not have the company’s economic interests at heart and are instead driven by an “extreme agenda” designed to shrink the company’s business. This is an attempt to discredit a long line of long-term shareholders who for years have asked Exxon to take necessary steps to meet its stated goal of net zero carbon emissions by 2050, a goal reiterated by thousands of global world leaders, businesses, and other key stakeholders at COP 28. Far from being an “extreme agenda”, a focus on the transition of the oil and gas sector to clean energy is a mainstream discussion both inside and outside investor circles and, as an industry leader with an outsized carbon footprint, Exxon has always been central to those discussions. The National Oceanic and Atmospheric Administration (NOAA) estimates the cost of climate and weather disasters in the United States in 2022 totaled more than $165 billion and the costs continue to rise each year. The Arjuna/FollowThis proposal built on years of investor engagement around the increasing financial risks to the company and its shareholders from a delayed response to the climate crisis.

Investors used various approaches to signal their opposition to the lawsuit. On April 18, long-term shareholders Wespath Investments and Benefits (the pension board of the United Methodist Church) and Mercy Investment Services filed an exempt solicitation calling for investors to vote against ExxonMobil’s Lead Director Hooley and CEO  Woods. They then broadened their outreach, holding a May 9 briefing attended by approximately 175 investors to make their case. The proponents were joined by Illinois State Treasurer Michael Frerichs and Maryland State Comptroller Brooke Lierman who criticized the suit and warned of the threats to shareholder rights it represented. Treasurer Frerichs also published an Op Ed in the Houston Chronicle.

Thus began a series of statements and declarations of intentions to vote against ExxonMobil directors from multiple funds. While many voted against Woods and Hooley, CalPERS, the country’s largest pension fund with AUM of $485 Billion voted against the entire Board and the NY State Common Retirement Fund with $207 Billion voted against the majority of the board. See this list of investor statements and vote declarations.

The Wespath/Mercy solicitation was followed by solicitations from the Illinois State Treasurer Frerichs and CalPERS, which based their arguments for a “No” vote as one in support of shareholder rights. CalPERS followed its solicitation with a letter to its Members explaining their vote against all Directors and also discussing their decision widely with the media. As CalPERS CEO Marcie Frost said, “What doesn’t work is a powerful global company that seeks to punish shareholders for speaking out. The long-term repercussions of silencing shareholders should concern everyone. So let me be clear, CalPERS will not be silenced and we will not be silenced in our call for more information and more ways to assess the risks of climate change”. Nicolai Tangen, the CEO of Norges Bank Investment Fund, Norway’s $1.5 T sovereign wealth fund and one of ExxonMobil’s top shareholders stated in the Financial Times, “It’s a worrisome development. We think it is very aggressive and are concerned about the implications for shareholder rights.”  Moreover, the day before the ExxonMobil AGM, approximately 40 global investors, the majority European and representing $5.2 T, issued a statement criticizing the lawsuit.

On May 21, investors led by NYC Comptroller Brad Lander sent an open letter signed by 13 State officials and trustees to major asset managers that were holders of ExxonMobil stock urging them to hold the Board accountable. A number of Red State officials countered by writing managers urging them to vote in favor of the board, which heightened both the visibility and politicization of the debate.

The controversy intensified when proxy advisor Glass Lewis recommended a vote against Director Hooley citing “unusual and aggressive tactics” in pursuing a lawsuit against shareholders. ExxonMobil lawyers then filed two solicitations demanding that GL reverse its recommendation, arguing in part that GL had a conflict of interest due to its affiliate membership in ICCR. We note that as GL conducts proxy voting on behalf of its many investor clients, it holds membership in numerous investor organizations.

At the annual meeting of shareholders, CEO Woods again broke precedent by making statements attacking the motives of the filers rather than just presenting the company case against the proposal, another sign that the company was embracing a more confrontational approach. When the votes were tallied, 13% of ExxonMobil shareholders (341 million votes) had cast votes against lead Director Hooley, contrasting sharply with the average director opposition in the 3-4% range. CEO Woods received the second lowest vote at 91%.

What are some lessons learned from these four months of controversy?

• It was both important and gratifying to see such a broad spectrum of global investors standing in solidarity to protect shareholder rights. The objective of the call for a vote against directors was never to unseat them, but to send a clear message not only to ExxonMobil, but also to any other companies considering such an action that the threat of lawsuits and other tactics of intimidation have no place among a company’s investor relations strategies. We believe most companies would understand that bypassing the established SEC process and aggressively suing a proponent is unwise, costly, and a risk to their reputation.
• The public nature of the lawsuit and ensuing controversy was widely covered by the press. The company was called out in many articles for its bullying and intimidation of Arjuna and FollowThis, particularly as it continues to pursue the lawsuit against them despite their having withdrawn the proposal with a promise to never file it again. To insist that shareholders fall in line with management or face costly litigation is disrespectful of a key stakeholder and provider of capital and bullying behavior unworthy of a company of ExxonMobil’s status. It is also a significant reputational risk. The company must do better.
• In seeking a court decision – and seeking it in a notoriously pro-business court in Texas – ExxonMobil is attempting to subvert the authority of the SEC as an independent arbiter of proxy disputes. This aligns with the actions of business trade groups like the National Association of Manufacturers (NAM) and Business Roundtable (BRT), which have long sought to alter SEC rules to limit shareholder voices. ExxonMobil is an influential member of both trade groups and NAM and the BRT filed an amicus brief in ExxonMobil’s lawsuit. Should the court reverse decades of precedent and support ExxonMobil’s argument that shareholder proposals related to climate risk should generally be blocked,  it would deal a huge blow to corporate accountability structures with significant and systemic consequences for the environment, the economy, and the public interest.

In the 25 years that ICCR members have been engaging ExxonMobil, we have witnessed dozens of constructive agreements leading to the withdrawals of proposals and some notable progress on the company’s management of climate risk. In fact, shareholder engagement, including the filing of shareholder proposals, has proven to be an effective method for communicating investor concerns for decades with nearly every company in the Fortune 500. For this reason, we are genuinely perplexed by ExxonMobil’s sudden aggressive stance toward its shareholders. The investors pursuing changes in climate policy and practice include public pension funds, asset managers large and small, religious investors and health care systems, foundations and trade unions. Many investors have engaged ExxonMobil on the threat posed by climate change because they view it as an existential threat to the company and to the economy writ large. These investors represent trillions of dollars in assets under management holding a significant stake in the company; they cannot all be dismissed as fringe investors with an “extreme agenda”.

Given the stakes, investor opposition to Exxon’s suit is expected to continue. Meanwhile, we look forward to returning to a time when investors and ExxonMobil management can engage in civil, constructive dialogue, and the rights of shareholders as part-owners to petition the company through shareholder proposals is, if not welcome, at minimum respected.