What are we, as investors, to make of a company whose board approves suing its own shareholders?  That is precisely what ExxonMobil has done, setting what we believe to be an alarming precedent.

Earlier this year, the US oil and gas major filed a lawsuit against an investment management company that submitted a shareholder proposal that was alleged to be disruptive and advancing a personal agenda, as well as being part of a so-called “inundation” of listed companies.1   

We believe that Exxon’s arguments are mistaken on all three counts.

1. Disruptive

The lawsuit states the proposals “could disrupt the ordinary business operations of public companies and harm their shareholders”.

It is extraordinarily rare in the US for shareholders to submit binding shareholder proposals (most are precatory or non-binding). Even if a majority of shareholders vote in favor of this, or any other non-binding resolution, the company is not obliged to do anything.  Therefore, alleging that a purely advisory measure could “disrupt ordinary business operations” assumes that the company’s own management and boards choose to apply these disruptive changes.

2. Personal agenda

The lawsuit accuses those behind the proposal of “advancing their personal agenda at the expense of ExxonMobil’s shareholders”.

The proposal asked that the company accelerate progress on reducing greenhouse gas (GHG) emissions and disclose its plans, targets and timetables for doing so. We believe this to be clearly in the interests of all Exxon shareholders. After all, long-term shareholder returns could be undermined by climate risks. Being a major contributor to one of the drivers of climate change carries regulatory risks, as do rising physical climate risks that involve direct costs (like damage from extreme weather) and indirect costs (like more costly insurance). 

According to S&P Global, without adaptation measures, the financial costs related to the physical impact of climate change will, by the 2050s, be equal to an average of 3.3% per annum of the value of real assets held by companies in the S&P Global 1200 index of global listed equities.2 The rising annual insured losses due to events and conditions related to climate change means that most shareholders with diversified portfolios will see an increasing drag on returns as a result.3

3. Inundation

Exxon alleges that shareholder proposals “inundate public corporations with proposals designed to push ideological agendas”. 

In the 2023 proxy season, there were 889 shareholder proposals submitted to US companies.4 At the end of that year, there were 2,272 companies listed on the New York Stock Exchange, and 3,432 on the NASDAQ.5 On average, this means that a publicly-listed US company received 0.15 proposals, meaning most didn’t receive any.  Exxon received more than most: in 2023, it put 13 shareholder proposals on its proxy ballot. There was an additional proposal filed that was granted no-action relief by the US Securities and Exchange Commission (SEC). Dealing with such proposals can claim time from the board and management, though how much time and money is needed depends very much on choices made by the company. There are some estimates of how much it costs to deal with a shareholder proposal – several in the five- and six-figure range – but these are usually based on self-reported figures with little or no empirical support, and unknown credibility.6 There is no reliable publicly available information substantiating that companies routinely or typically spend money in six-figure ranges and hundreds of hours dealing with shareholder proposals.

Irrespective, there is a low-cost mechanism to address proposals that companies feel are too detailed, immaterial or part of ordinary business. Companies can appeal to the SEC for no-action relief and make their own case for why these proposals should not be on the proxy ballot. If the SEC agrees, the proposal can be excluded. The SEC reports that this relief has been granted in 68% of cases filed in the first four months of 2024.7 While it may take some time from corporate counsel to file a no-action request, it’s likely far less expensive than filing a lawsuit, and pursuing it through litigation.  So why sue?

Addressing the true purpose of the lawsuit

Many think the true intention of this lawsuit is to discourage the filing of shareholder proposals. If that was Exxon’s intent, then at least some of that mission has been accomplished.8 But at what cost? Shareholder rights are valuable and companies with stronger shareholder rights tend to trade at higher multiples.9 

Using corporate might to cut off shareholder proposals is ultimately a losing proposition, both for corporations and their shareholders. As long-term investors, we invest in companies whose management teams we trust to create value, but we also know that even good management teams aren’t always right. Shareholder proposals can be a good source of external ideas from beyond the corporate echo chamber, helping to avoid the dangers of groupthink. The people responsible for representing the interests of shareholders need to know what those shareholders are interested in. Curtailing one key channel for getting that information is, in our opinion, unwise. This is particularly the case for issues that affect societies and economies so profoundly. 

  1. Posner, C., 4 June 2024: Exxon court challenge to Arjuna shareholder proposal survives dismissal. Harvard Law School Forum on Corporate Governance ↩︎
  2. S&P Global, November 2023: Quantifying the financial costs of climate change physical risks for companies ↩︎
  3. These include acute risks like extreme precipitation, flooding, typhoons and coastal storms, drought, wildfire and severe weather, and chronic risks like sea level rise, extreme heat, and expanding populations of human, animal and crop diseases and pests. ↩︎
  4. Mueller, R.O., Ising, E.A. and Kim, T.J., August 2023: Shareholder Proposal Developments During the 2023 Proxy Season. Harvard Law School Forum on Corporate Governance ↩︎
  5. Statista, May 2024: Comparison of the number of listed companies on the New York Stock Exchange and Nasdaq from 2018 to 2023, by domicile ↩︎
  6. Kanzer, A.M., 2017: The Dangerous “Promise of Market Reform”:  No Shareholder Proposals,”
     Harvard Law School Forum on Corporate Governance ↩︎
  7. Lewis, S. & Shareholder Rights Group: 20 May 2024: SEC No Action Statistics to May 1, 2024. Harvard Law School Forum on Corporate Governance ↩︎
  8. The activist investor behind the proposal, Arjuna, withdrew its proposal and agreed not to file similar climate-related proposals against ExxonMobil again. ↩︎
  9. See Cremers, M. & Ferrell, A., June 2014: Thirty Years of Shareholder Rights and Firm Value. The Journal of Finance. See also Demirtas, C., July 2023: Shareholder Voting Behavior and Its Impact on Firm Performance: a Configurational Approach. Social Science Research Network↩︎

Nothing presented herein is intended to constitute investment advice and no investment decision should be made solely based on this information. Nothing presented should be construed as a recommendation to purchase or sell a particular type of security or follow any investment technique or strategy. Information presented herein reflects Impax Asset Management’s views at a particular time. Such views are subject to change at any point and Impax Asset Management shall not be obligated to provide any notice. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary. While Impax Asset Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made.

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