Small Win Big: The Curious Case of Exxon
How a small investment firm changed Exxon's strategy with just 0.02% shareholding!
When you hold shares of a company, you become a partial owner of the company. Don’t you get a feeling of belongingness in the company? You are sent the notice to attend the Annual General Meeting. The company’s annual reports address you, the shareholder.
Aah. It feels too good and you start stitching a dream of taking important decisions for your company. But as you go to cast your vote in the meeting, you are jolted back to reality. You realise that you hold very few shares to have a voice. All you can do is earn money via dividends or selling the shares at a higher price. The dream to take the company to the moon with your decisions comes crashing down.
But, what if that’s not always the case? What if you could make a difference with your voice?
Here’s a story of hope that shows how even a minority shareholder can make a difference. Read on.
ExxonMobil, the largest oil and gas organisation in the world, was up for its Board of Directors election earlier in May this year.
What happened at this election, shook the industry and forced the company to reconsider its business strategy. All because of a teeny tiny shareholding of 0.02%.
“Who’s this 0.02% shareholder that managed to pull off something like this?”
Enter: Engine No.1, an impact investing firm formed with the motive to make a positive impact on the workers, communities, and the environment, via the investments that it makes. After all, an organisation impacts the entire society. Considering only profitability and shareholder’s interest is not enough, right?
And well, Engine No.1 has pretty experienced folks working with it.
For instance, back in 2017, Charlie Penner, took on Apple, in partnership with California State Teachers Retirement System (Calstrs), the second-largest retirement fund in the US, to ensure that Apple added parental controls to the iPhone.
Yes. Engine No.1 is capable of making such tangible changes. And now, Exxon became its target.
But, why Exxon? And, how was 0.02% stake enough?
Well, it believed that Exxon had been operating for a very long time without considering its “impact” on the environment. And, things had to change now.
But, they couldn’t do this alone. More shareholders had to be made aware.
Umm, how?
Remember how Charlie Penner had partnered with Calstrs in the Apple episode? Yeah, Calstrs are long-term investors in Exxon as well. So, with Penner’s contacts and Chris James’ (the founder of Engine No. 1) deep pockets, they were able to convince Calstrs and other investors to push for Engine No.1’s long-term policy change campaign against Exxon.
Exxon Retaliates
Now, Exxon wasn’t going to stay shush. In an effort to keep the activist shareholders at bay, Exxon responded with its own climate initiatives which included reducing:
(i) Greenhouse gas emissions by 20%
(ii) Methane intensity by 50%
This is to be achieved by 2025, consistent with the Paris Agreement.
These actionable were just enough for other investors to back off.
But, Engine No.1 was further fueled to run its campaign, pushing for a rapid change in the industry.
In a presentation made to Exxon shareholders, the activists argued that the company's climate approach and finances go hand in hand and the only solution is to make changes to the board and to the company strategy.
The Final Showdown
On May 15, 2021, Engine No.1 succeeded in its mission. Within 5 months of its formation, Engine No. 1 was able to snag 3 seats in Exxon’s 12 member board. The minorities are finally standing up against the mighties.
Their presence is finally being acknowledged, and they are the last ones standing tall with their heads high. The wars are no more about small and big, but about the greater good.
We don’t get to hear many such instances of minority shareholders moving the needle in India. Why do you think is that so? Let us know in the comments.
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In my opinion, the primary reason behind why we don't get to see these kind of events in India is lack of awareness among investors.
In our country, a vast majority of the retail equity investors are only interested in capital appreciation, a few of them care about dividends along with capital appreciation and almost no one cares about the governance of the companies in which they have invested.
Poor financial literacy levels make things even worse.
I Hope your articles will awaken a few people.