Exxon Chief Woods Gets Black Eye With Loss to Activist Investor

(Bloomberg) — Exxon Mobil Corp. CEO Darren Woods suffered one of many greatest setbacks of his profession by the hands of a tiny activist funding agency established lower than six months in the past.

At least two of the activist’s nominees received seats on Exxon’s board Wednesday, regardless of the chief govt officer’s vocal opposition and an all-hands-on-deck battle by the oil large to defeat the insurgents.

A 3rd seat could but fall to activist Engine No. 1 when the ultimate outcomes from Exxon’s annual assembly are tallied. That would put Woods within the difficult place of main a board that’s 25% underneath the management of outsiders. Last-minute efforts by Woods and his group to appease climate-conscious traders and rebuff Engine No. 1’s assault have been to no avail.

“Darren Woods has come from a long line of CEOs that have been very straightforward: it’s our ball, it’s our bat and we’re going to do what we want,” stated Mark Stoeckle, chief govt of Adams Express Co., which oversees $2.eight billion in belongings. “When you’re the biggest and the baddest you can get away with that. But you have to change with the times. The messaging has been terrible.”

The result’s one the most important activist upsets in recent times and a humiliation for Exxon. It’s additionally unprecedented within the rarefied world of Big Oil, and an indication that institutional traders are more and more prepared to power company America to sort out local weather change. That Engine No. 1, with only a 0.02% stake and no historical past of activism in oil and gasoline, might notch up even a partial victory in opposition to the Western world’s greatest crude producer reveals that environmental issues are resonating all the best way to the highest of the most important U.S. firms.

Click right here to see Bloomberg Intelligence’s ESG knowledge.

For Woods, who was listed as 56 years outdated within the firm’s March proxy submitting, the defeat is simply the newest black mark since his elevation to CEO in 2017. Exxon underperformed friends for the primary 5 years of his reign and in 2020 the shares cratered by 41% for the worst efficiency in 40 years. Under his management, the corporate additionally posted its first annual loss in a long time and noticed oil manufacturing hunch to the bottom because the Mobil Corp. merger in 1999. Meanwhile, Exxon’s debt load ballooned because it borrowed to pay for dividends and drilling amid shrinking money circulate.

Wednesday’s vote was additionally putting due to the power with which Exxon battled the activist, which additionally criticized the corporate’s monetary efficiency. Exxon refused to to meet with the nominees and Woods informed shareholders earlier this month that voting for them would “derail our progress and jeopardize your dividend.” The firm even went so far as to pledge, simply 48 hours earlier than the assembly, that it’s going to add two new administrators, together with one with “climate experience.”

READ: Exxon Activist Battle Turns Climate Angst Into Referendum on CEO

“This historic vote represents a tipping point for companies unprepared for the global energy transition,” California State Teachers’ Retirement System, additionally recognized CalSTRS, which had supported Engine No. 1, stated in a press release after the assembly. “While the ExxonMobil board election is the first of a large U.S. company to focus on the global energy transition, it will not be the last.”

What Bloomberg Intelligence Says

The election of at the least two Engine 1 nominees to Exxon Mobil’s board might drive modifications to how the oil main allocates capital, completely altering its funding proposition.

— Fernando Valle and Brett Gibbs, BI analysts

Read the complete report right here.

In different corners of the commodities sector, shareholders this 12 months have already proven frustration with executives’ reluctance to embrace powerful environmental targets. On the identical day that Exxon traders met, administration at Chevron Corp. have been rebuked by their shareholders who voted for a proposal to scale back emissions from the corporate’s clients. DuPont de Nemours Inc. not too long ago suffered an 81% vote in opposition to administration on plastic-pollution disclosures, whereas ConocoPhillips misplaced a contest on adopting extra stringent emission targets.

READ: ‘Hidden Gem’ Oil, Gas Stocks Hold Their Own Amid Climate Uproar

Also on Wednesday, Royal Dutch Shell Plc was ordered by a Dutch court docket to slash its emissions tougher and quicker than deliberate, a ruling which will have penalties for the remainder of the fossil gasoline trade.

The Exxon assembly proved to be a nail-biting conclusion to a monthslong proxy combat. Exxon halted proceedings at one level to permit extra time for vote counting. San Francisco-based Engine No. 1 accused the corporate of creating a “last-ditch attempt to stave off much-needed board change.”

The profitable Engine No. 1 nominees have been Gregory Goff, former CEO of refiner Andeavor, and environmental scientist Kaisa Hietala. Earlier this month, Exxon described all 4 dissident nominees as “unqualified.” Eight Exxon nominees have been elected and two board seats stay undecided; one or each of them might probably go to the activist.

Sacrosanct Dividend

The outcome reveals a transparent dissatisfaction with Woods’ technique, regardless of the inventory’s rally this 12 months, up greater than 40% due to surging oil costs. The inventory rose greater than 1% after the vote was disclosed.

Woods, who retained his board seat, ought to have the option to proceed bettering Exxon’s monetary efficiency as money flows get better, securing the S&P 500’s third-largest dividend and abandoning 2020’s report loss. But the larger query issues Exxon’s energy-transition technique, thought-about by many shareholders to be nicely behind these of its European friends.

Exxon’s environmental report and unwillingness to embrace the pivot away from fossil fuels shortly sufficient was a key criticism within the proxy marketing campaign. Engine No. 1 was scathing in its evaluation of Exxon’s long-term monetary efficiency, calling it “a decade of value destruction.”

It stays to be seen how Exxon pivots, if in any respect, however the message from shareholders is evident: The establishment can’t proceed.

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