ExxonMobil again escaped investor demands regarding its dual leadership structure, where the same person is board chair and chief executive officer. At the energy giant’s annual shareholder meeting Wednesday, the challenge fell short of a majority.
The proposal, backed by institutions such as the $210.2 billion New York State Common Retirement Fund and the $10.4 billion Church Commissioners for England, asked that the oil company separate the chairman and chief executive position and appoint an independent director on the board.
The insurgent attempt did muster more votes this year, however, even if failing to reach a majority. The question amassed a record 40.8%, compared to 2018’s 38.7%.
Activist shareowners were predictably unhappy.
“Shareholders sent a strong message that they are dissatisfied with Exxon’s poor governance, which is preventing the company from adequately addressing climate risk,” New York Comptroller Thomas DiNapoli said in a statement obtained by CIO.
Edward Mason, head of responsible investment for the Church Commissioners for England, called the 40% shareowner vote “a warning shot” from investors who have “expressed their frustration” at the oil giant’s governance structure.
“Today’s increased support for the separation of chair and chief executive, in the face of board opposition, is a measure of investors’ profound dissatisfaction,” he said.
The two are part of the initiative Climate 100+, which seeks to keep companies on track to deliver the global low carbon goals of the Paris Agreement. Climate 100+ is supported by more than 320 institutional investors, with $33 trillion in assets under management.
Institutional Shareholder Services, the parent company of CIO, and proxy adviser Glass Lewis urged Exxon to separate the roles.
“Conflicts of interest may arise when one person holds both the chairman and CEO positions, thereby leading both the management team and the board which oversees it,” reads an ISS analysis, which says independent leadership would enhance board oversight.
Exxon, however, argued that the double title works to its advantage, as it allows the energy producer to speed up its business decisions.
“As new issues evolve within the business, the Chairman/CEO is positioned well, with deep company knowledge and industry experience, to raise those issues with the Board, ensuring appropriate oversight,” it said in a statement leading up to the annual meeting.
The oil business has held its CEO-chairman structure for much of the company’s 149-year existence. If the proxy question had passed, it would not affect current Chairman and CEO Darren Woods, who’s been wearing the two hats since 2017. If enacted, the new rule would have begun when the next CEO is chosen.
Woods’ board term ends in 2020.
Governance proposals against companies such as Exxon are not always successful—and when they do pass, managements often don’t comply because the votes are merely advisory.
Take media streaming service Netflix, for example. In 2014, a majority voted to end the system of staggered board terms, where only a fraction of directors is up for a vote per year. Under this system, it is impossible to vote out an entire board all at once. Similar proposals also won in the following years, and were ignored by the C suite. In 2018, a proxy question passed calling for making it easier for shareholders to call special meetings. Result: zip.
The social media giant’s founder, chair, and CEO, Mark Zuckerberg, has been receiving plenty of pushback from shareowners and institutions lately due to Facebook’s data privacy scandals. But Zuck is not likely to give up any of his posts.
Tesla’s Elon Musk wound up relinquishing his role as chair after misleading Tweets about taking the company private caught the SEC’s eye. Although the regulator wanted him out of the company altogether, he resolved the issue within days by dropping the board gig and paying a hefty $40 million fine ($20 million from Tesla, the rest from his fat wallet).
ExxonMobil was unable to be reached for direct comment.