The oil and gas company is excluding a critical shareholder proposal for greenhouse gas reduction targets even after majority investor support for climate risk assessment
By Kevin Thomas, Executive Director at SHARE
A fundamental principle for SHARE is that a corporation must be accountable to its stakeholders. While too many theorists say this exclusively means accountability to shareholders, that’s a misunderstanding of both the law and common sense.
In fact, if the new Canadian federal budget bill passes, the Canadian Business Corporations Act will be formally amended to recognize what has been more or less accepted in Canadian law for some time: that in discharging their duties, corporate directors are not expected to slavishly chase short-term gains in share prices at the expense of all else, but may consider the interests of workers, the environment, and of course the long-term interests of the corporation.
In other jurisdictions like Delaware (where most US public companies are incorporated), the letter of the law may still be different, but the idea that directors have a broader long-term duty is catching on, and the future of corporate governance should be better as a result.
If this represents the future, ExxonMobil’s board is clinging to the past.
ExxonMobil recently applied for and received a “no action” letter from the US Securities Exchange Commission (SEC) allowing it to exclude a critically important shareholder proposal from its proxy circular without threat of regulatory action by the SEC.
The proposal it excluded? A request that the company develop “short-, medium- and long-term greenhouse gas targets aligned with the goals established by the Paris Climate Agreement to keep the increase in global average temperature to well below 2°C and to pursue efforts to limit the increase to 1.5°C.” The proposal was filed by a group of investors led by the New York State Common Retirement Fund and the Church Commissioners for England, and including the Fonds de Solidarité des Travailleurs du Québec (FTQ) working with SHARE.
In 2017, a majority of ExxonMobil’s shareholders voted in favour of a report assessing the long-term effects of climate change policies on the company’s portfolio. You might think the company would be willing to consider how setting targets could legitimately help it address the clearly material challenge that climate change poses to its future business. Instead, the board opted to exclude the proposal from the ballot. In doing so, it opted to sidestep accountability to its shareholders.
We believe this request for exclusion signals a governance problem at ExxonMobil.
It’s hard to imagine a more material concern than climate change for the board of one of the world’s largest oil and gas companies. A sincere request to demonstrate a plan to address it, filed by long-term Exxon-Mobil shareholders, should have been treated with the seriousness it deserves.
Frankly, we’ve had issues with many of the directors for some time, due to lack of independence on the board. The current CEO is also the chair of the board, for example. The chair cannot be a member of management and still guide the board in its responsibility for overseeing management’s performance without an obvious conflict of interest. We’re going to wholeheartedly support a shareholder proposal this year asking for an independent Chair at Exxon-Mobil, which is something that should have been fixed long ago.
There also have to be consequences when an entire board agrees to deny shareholders a vote on an issue of this magnitude. We should be sending that signal through our votes. That’s why we are recommending to our proxy voting clients that they withhold their support for all Exxon directors at the upcoming annual general meeting on May 29th.