Global corporations account for more than half of the world’s GDP. For the most part, their decisions are largely uneventful: they merely pursue the profits they’ve already made. But a few years ago, one corporation had a bit of a wake-up call: the profit targets that had been in place since Exxon’s founding suddenly disappeared. This prompted them to review their business model, and take a look at the world around them. The results were surprising.
For months, I have been hearing about the proxy battle between the directors of ExxonMobil and the corporation’s management. So, I decided to look up what the fuss was all about. In a nutshell, the Exxon board of directors has been fighting the management for the last six years. The reason for this was the board’s distrust of the corporation’s management’s ability to run the corporation in the best interest of its shareholders, be they actual or would-be shareholders. This is particularly true of those who are members of the board of directors. The board of directors is responsible for the efficient and profitable management of the corporation.
A proxy fight between ExxonMobil and the family that controls it is underway, and even if the company ends up passing control to Hank Paulson of Goldman Sachs, it is unclear how the changes will affect the company’s strategy.
View of the Exxon Mobil refinery in Baytown, Texas .
The usual suspects are in the cast
Mobil’s partial defeat in Wednesday’s shareholder battle was fossil fuels’ Waterloo. Sorry – the vote reflects enormous political pressure and financial leverage from public pension funds, voting consultants and asset managers such as
who want to appear virtuous to the progressives now in power.
San Francisco-based hedge fund Engine No. 1 was formed last November with the goal of controlling Exxon’s board of directors. His purpose: Forcing the largest oil and gas company in the U.S. out of its traditional business. The fund attracted large public pension funds and benefited from the devastating effects of the pandemic.
Exxon needed to wake up and get out of the oil and gas business, said the chief investment officer of the California State Teachers’ Retirement System (Calstrs).
said in December. Critics say Exxon’s board has been too lenient on Exxon executives who have invested in U.S. shale projects and accumulated debt amid plummeting oil and gas prices.
Critics also condemned the former CEO
a big bet on the Canadian oil sands, which have become unprofitable in a low price environment. Exxon’s main miscalculation was its underestimation of the effect of US shale oil production on oil prices. The company was a late entrant into shale production and paid a high price for fracking pioneer XTO Energy in 2010.
While European competitors are betting on renewables like wind and solar, Exxon has made a long-term bet that the world will need oil and gas for decades to come. It estimates that about $12-17 trillion in new investment will be needed to create enough oil and natural gas reserves to meet global demand by 2040.
Low-income countries will need oil and gas to modernize and replace more polluting energy sources such as coal and wood, the vice president of Nigeria said.
said last week at the World Energy Summit in Columbia. Liberals in rich countries, including the United States, want to ban the internal combustion engine. But poor people in Nigeria will not buy Teslas.
This is why Exxon’s European competitors are constantly developing new oil and gas projects. Russia has no intention of reducing its investments. Even Canada’s largest pension funds are increasing their investments in tar sands producers as prices recover from the pandemic. Exxon’s shares, by the way, are up 42% this year.
Engine 1 saw a hole and exploited it. A preliminary vote Wednesday showed that shareholders supported at least two of the four candidates for the company’s board. But who are these shareholders?
Namely, large union pension funds like Calstrs and asset managers like BlackRock who are trying to align themselves with the anti-fossil fuel crowd that rules Washington. Duopoly advisors Glass Lewis and Institutional Shareholder Services, which provides voting advice to institutional investors, also rallied behind Exxon’s opponents. This was no small revolt by investors against fossil fuels. It was a progressive political move.
Exxon would not benefit from withdrawing from its traditional activities and throwing itself headlong into the development of renewable energy, an area in which it has no experience.
Fuel will not disappear and Exxon will not prosper if it claims to.
Potomac observation: Infrastructure negotiators are at an impasse because unions don’t want to give up the PRO Act. Image: Nicholas Kamm/AFP via Getty Images
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Appeared in print on 27. May 2021.
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