‘We Always Believed We Had a Compelling Case for Change’ – JUST Interviews Activist Investor Engine No. 1 After Exxon Victory
Last week, a six-month-old hedge fund with a 0.02% stake in ExxonMobil – Engine No. 1 – changed the face of shareholder activism forever. At Exxon’s annual meeting, the activist investor won two of four contested board seats as part of its $30 million Reenergize Exxon campaign.
At the time of writing, former Andeavor CEO Gregory Goff and former Neste executive vice president Kaisa Hietala have been confirmed, with X (formerly Google X) senior strategist Alexander Karsner’s fate still to be determined. Some investors told reporters that Exxon had tried to sway their vote during an unscheduled hour-long break during the meeting, but ultimately the support of major shareholders BlackRock, Vanguard, and State Street was critical for the victory.
We connected with Engine No. 1’s principals about why they pursued moving Exxon toward more alternative energy, how the vote went down, and what they learned along the way. Here’s the full unedited exchange.
JUST Capital: When did you decide that this would be Engine No. 1’s first campaign, and what gave you the indication that you could win even a partial victory? Did you even think you’d be successful when you started out?
Engine No. 1: ExxonMobil was an obvious target in some ways. Even amongst the Oil Majors it is an outlier with respect to how little it has done to evolve its business in a changing industry and world.
Ten years ago, ExxonMobil was the largest company in the world by market capitalization and the #1 company in the Dow Jones Industrial Average (DJIA). Today, its market capitalization has been cut in half and it has been kicked out of the DJIA; neither is true of its closest competitor, Chevron.
We always believed we had a compelling case for change and we were fortunate to find nominees with the transformative energy experience that ExxonMobil’s Board needs to help set a path to greater long-term value creation, so we knew if we executed we would have a good chance to be successful.
We have multiple strategies within Engine No. 1 that we will offer, but the urgency of the ExxonMobil situation led us to introduce the firm through our active engagement strategy.
What was your pitch to institutional investors? What did you learn from these discussions about what worked and what didn’t?
We were aware that there was investor dissatisfaction with the company, and that came through in our discussions with institutions. For years investors have been pushing for companies to begin addressing the long-term business risks of climate change, and gradually but purposefully repositioning their businesses for the energy transition.
We made the case that the Board needed individuals with successful and transformative energy experience as it seeks to navigate through the transition to a cleaner economy. We were grateful that every independent proxy advisory firm that opined on the campaign, including ISS, Glass Lewis, Egan-Jones, and PIRC, recommended that shareholders vote on our proxy card.
We were also very fortunate to have overwhelming support from institutional investors, particularly from the California State Teachers’ Employees Retirement System.
Why did you choose to focus the vote on changing the board, versus another approach, like a commitment to reducing emissions, as Chevron shareholders did?
We think you need not only a mandate for change but also the ability to successfully execute on that mandate, which we believe requires a Board with relevant industry experience. ExxonMobil did not have a single independent board member with energy experience when we began our campaign. We believe change begins at the top and that ExxonMobil required individuals who knew its industry inside and out to help it evolve.
There is certainly value to asking companies to commit to reducing emissions, but almost all of those resolutions are voluntary and non-binding. We believe individuals with energy experience need to get into the boardroom and take a good look under the hood before effectively helping to implement a plan that best positions ExxonMobil for success for decades to come.
Having gone through it, what do you think of the annual general meeting proxy voting process overall?
ExxonMobil’s actions around and at the annual meeting were beneath such an iconic company. We will have more to say about this at a later date.
What are some of the key things you didn’t know at the start about the journey that you learned along the way? What do you now consider to be some keys to mounting a successful proxy battle?
We didn’t know how far ExxonMobil would go to avoid simply having new board members with relevant industry experience. That was a real red flag for us, and we believe was also helpful in making our case to shareholders.
How do you respond to critics of anything that could be considered ESG, including aggressive pushes for clean energy, as getting too political for business?
Climate change is not political, it’s a scientific fact. And it’s having real economic impacts and will continue to do so. The same is true of the technologies that are changing the energy industry. Businesses need to change, to adapt with the times and technology. There’s nothing ideological about that.
How do you see this result in the context of the wider push for more corporate accountability, shareholder democracy, and stakeholder value creation?
Ideally it adds to the growing list of reasons why companies need to be focused on creating investor value over the long term, which we believe includes thinking about their long-term relationship with their customers, their employees, society, and in this case, the planet.
What’s next for Engine No. 1?
You will see more of the entirety of the firm as time goes on, including our other strategies.
You can learn more about the campaign and Engine No.1’s strategy in this interview JUST did with the campaign’s head Charlie Penner and CalSTR’s Aeisha Mastagni in April. CalSTRS is one of the country’s largest pension funds, and was an early backer of Engine No.1’s full board slate.
Finally, we note it’s been reported Engine No. 1 has filed for an ETF that focuses on, among other things, how companies treat their employees and the environment, as a means of more active engagement. It is a topic close to our hearts and a development we will be following closely.
(Disclosure: Exxon board member Ursula Burns and Engine No. 1’s Jennifer Grancio are JUST Capital advisors.)