Investors that use shareholder resolutions to pressure companies on environmental and social issues said they are worried that an Exxon Mobil lawsuit bypassing the US securities regulator could undermine their influence.
Under appointees of US President Joe Biden, the Securities and Exchange Commission (SEC) has made it more difficult for companies to prevent these resolutions from moving to a shareholder vote by appealing to the regulator.
Exxon sidestepped the SEC and filed a lawsuit earlier this month against two shareholders that had put forward a resolution calling on the oil major to set new targets for reducing some of its greenhouse gas emissions.
Exxon accused the investors in its lawsuit of abusing the process by putting forward resolutions to advance their agenda of diminishing its fossil fuels business, rather than grow shareholder value. It said that 90% of its shareholders voted down a similar proposal last year.
The top US oil producer is seeking a ruling by March 19, and on Thursday asked the judge to fast-track the case. Its proxy statement needs to be filed by April 11, in time for its annual shareholder meeting in May.
“We’re concerned that this action could have a chilling effect, particularly on small investors who don’t have the resources to battle Exxon or other companies in the courts,” said Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR). ICCR represents religious investors and other socially-aware asset managers.
Most shareholder resolutions are not legally binding on a company, even when a majority of investors vote for them. But companies often heed those that win significant support, even short of a majority, to show they are responsive to investors’ concerns.
Amy Borrus, executive director of the Council of Institutional Investors, whose members include big pension funds and asset managers, said the resolutions play an important role in allowing investors to express their views to a company’s management, board and other investors.
She added that if Exxon succeeds, others may also take their chances in court. Various companies and trade groups have complained that an SEC policy change in 2021 tipped the scales against them. The SEC made it more difficult for companies to argue that a resolution should be blocked because it micromanages operations.
This emboldened activist shareholders, and the number of resolutions jumped as a result. There were 889 proposals filed during the 2023 proxy season, the third consecutive annual increase and the highest number of submissions since 2016, according to data complied by law firm Gibson, Dunn & Crutcher.
Overall, fewer companies have been asking the SEC to throw out shareholder resolutions. Mark Uyeda, one of the five SEC commissioners who vote on rule changes, said the agency’s current approach may have discouraged some companies from turning to the SEC for help.
“Companies could always go to court on shareholder proposals, but historically viewed the SEC as a fair arbiter. This perception may have changed due to recent policy changes” Uyeda, a Republican who became SEC commissioner in 2022, told Reuters in an email. He did not directly comment on Exxon’s lawsuit.
There are currently two Republican and three Democratic commissioners, and Uyeda was expressing only his views. An SEC spokesperson declined to comment. Another pending rule change proposed under SEC Chair Gary Gensler could further lower the bar for resolutions.
Ross Kerber and Jody Godoy, "Activist investors fret over Exxon Mobil’s lawsuit bypassing US regulator," Business recorder. 2024-01-30.Keywords: Social issues , Social security , Oil production , Exchange commission , Josh Zinner , ICCR , SEC