Exxon Mobil shareholder lawsuit costs board CalPERS support

Exxon Mobil‘s monthslong battle with two environmentally focused activist investors has cost the company the support of the California Public Employees’ Retirement System.

CalPERS, a $484 billion pension fund manager, said in an open letter Monday it would vote in opposition to all of Exxon’s 12 director nominees and its CEO, Darren Woods, at the shareholder meeting next week as a result of the company’s potentially “devastating” effort to quash the two activists, Arjuna Capital and Follow This. CalPERS has a $1 billion stake in Exxon.

The two activists submitted a shareholder proposal that would have forced the company to reduce direct emissions and set a target for lowering emissions at suppliers and customers. Exxon sued the investors in Texas federal court in January, prompting them to withdraw the proposal.

Even with the activists backing off, Exxon has continued its lawsuit to prevent the activists from ever again submitting such a proposal. The company said in a statement to CNBC that Arjuna and Follow This are attempting to “silence the voices of up to 90% of our voting shareholders who have rejected the proposal twice.”

CalPERS said in its letter that Exxon’s “reckless” lawsuit threatened shareholder activism efforts on any issue.

“If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits?” CalPERS CEO Marcie Frost and board President Theresa Taylor said in the letter. “Worker safety? Excessive executive compensation?”

CalPERS said it’s urging other shareholders to follow its lead “to send a message that our voices will not be silenced.”

An Exxon spokesperson said the company had engaged with the pension fund and did “not understand how they can make such a poor fiduciary decision,” pointing to the board’s role in creating “industry-leading shareholder value.”

Exxon could have potentially prevented the shareholder proposal from going public without a lawsuit by asking the Securities and Exchange Commission for an exclusion, which is a common practice. But Exxon went ahead with litigation, and said it’s seeking “clarity on a process that has become ripe for abuse.”

“We believe activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value,” the company said in a post on its website.

Exxon has faced down activist investors in the past.

In 2021, Engine No.1 ran a campaign that landed the firm three board seats. Engine No. 1 had a 0.02% stake, compared with CalPERS’ current ownership of about 0.2%.

That campaign garnered support from a number of institutional investors, including CalPERS, in its effort to overhaul Exxon’s disclosure standards and reconsider the company’s place in a zero-carbon world.

CalPERS is now opposing those same three directors, Greg Goff, Kaisa Hietala and Andy Karsner, that it helped elect. Another activist investor, Inclusive Capital founder Jeff Ubben, is also on Exxon’s board.

“We hope ExxonMobil’s directors will reconsider the lawsuit, an effort that seems more suited to schoolyard bullying than corporate leadership,” CalPERS wrote in its letter.