How Exxon Lost a Board Battle With a Small Hedge Fund

Early closing 12 months, Mr. Penner left Jana with ambitions of organising his private fund. However as a result of the pandemic hit, he held talks to hitch Mr. James’s nascent company — and launched with him an formidable thought he had been weighing for some time: Exxon.

The $250 billion behemoth was ripe for disruption, the two believed: Exxon was lagging rivals in pursuing strategies to cut back its carbon footprint, which could lastly worth the corporate financially. Its board lacked the expertise to pursue a further aggressive plan, they thought. And the oil massive had a fame for being highhanded with its shareholders.

The important thing to victory, in response to 2 people with knowledge of Engine No. 1’s approach, who spoke on the scenario of anonymity to debate private talks, was profitable over massive mutual-fund consumers who’ve been pledging to make their portfolios greener. Exxon’s excessive three shareholders — Vanguard, BlackRock and State Road, which collectively private one-fifth of the corporate’s inventory — had promised to cut back the carbon emissions of the companies they put cash into to zero by 2050.

Engine No. 1 introduced its marketing campaign in the direction of Exxon in December. A pension fund for lecturers in California and the endowment of the Church of England endorsed the difficulty.

After a flurry of phone calls, Exxon’s chief authorities, Darren W. Woods, and lead neutral director, Kenneth Frazier, held a Zoom identify with Engine No. 1 executives on Jan. 22. In the course of the assembly, in response to 2 people with knowledge of the matter, who spoke on the scenario of anonymity to debate private talks, Mr. Frazier struck a conciliatory tone — at one degree, he flashed a peace sign, one in every of many of us said — nonetheless said the corporate didn’t take into consideration Engine No. 1’s nominees to be licensed. Mr. Penner answered that the corporate must rethink, and insisted on all 4 of its proposed candidates taking seats on Exxon’s 12-member board.

After the choice, both facet girded for battle.

Over the next 5 months, a disagreement ensued, as a result of the corporate’s directors and activist insurgents put out assertion after assertion, all sides making its case. These efforts worth Engine No. 1 over $15 million, in response to a particular person with knowledge of the matter.

For Exxon, the principle goal was persuading consumers that it had viable plans to prepare for a lower-carbon future, whereas moreover arguing that Engine No. 1 had launched an unworkable varied plan and unqualified board nominees. The corporate added new directors to its board with out Engine No. 1’s enter, a switch that infuriated the fund.

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