Small investor activist’s arguments against Exxon draw crowds to his side

BOSTON/HOUSTON (Reuters) – Exxon Mobil Corp, an energy giant and once the world’s most valuable company, is coming under pressure from a small investment firm whose campaign to cut spending and change of direction is gathering more and more supporters.

FILE PHOTO: An Exxon gas station is seen in Houston, Texas, U.S., April 30, 2019. REUTERS/Loren Elliott/File Photo

Exxon has pushed past challenges by seeking big changes in its policies and leadership. But failing returns — its shares are down 40% over the past five years and losses through September reached $2.37 billion — could tip more holders behind the activist, investors and analysts say. analysts.

Engine No. 1, a week-old $250 million California-based company, has called for increased spending and pay cuts, a board shuffle and a switch to cleaner fuels. His views are supported by the California State Teachers’ Retirement System (CalSTRS), the Church of England, and echoed in part by the hedge fund DE Shaw, which manages $50 billion.

“Management and members of the Board of Directors regularly engage with our shareholders on a range of topics and appreciate their constructive perspectives,” but they do not share details of those conversations, Exxon spokesman Casey said. Norton.

The company supports the Paris Agreement on climate change, is working to reduce emissions and has been “encouraged by feedback” on recent plans to improve performance and yields, he added.

“This company is not making a climate change argument but a financial argument, saying your performance is terrible,” said sustainability expert Robert Eccles, a professor at the University of Oxford’s Said Business School. “The world is moving against Exxon, and I think activists can win this.”

For CalSTRS, the second-largest US pension fund with $255 billion in assets, its support for the No. 1 engine reflects an earlier union, when it backed hedge fund Jana Partners in a successful push for Apple adds parental controls to its phones.

Charles Penner, a former Jana partner who leads the fight and has known CalSTRS for years, has won her support by arguing that Exxon’s spending and dismissive attitude toward climate issues is costing it investor support, said a person familiar with his thinking.

He also wanted to make a statement with Exxon’s challenge, considering it the biggest and worst performer among its peers, the person said.

“It’s not about the size of your stake, it’s about the value and credibility of your argument,” said Aeisha Mastagni, chief investment officer at CalSTRS. “This is a business that needs change inside the boardroom.”

Although Exxon’s board is diverse, with female and minority directors, it needs energy industry experts such as No. 1 engine candidates, she said. .

The Church of England, which has presented climate and management-related change proposals to Exxon holders in the past, gave its backing to the No. 1 engine speech on Thursday.

New York state’s $226 billion pension fund, which has joined Church of England shareholder proposals in the past, said this week it would start withdrawing money oil and gas companies whose business plans do not comply with the Paris climate agreement.

And DE Shaw sent his own letter with criticism to Exxon.

“It’s no surprise someone is pushing for change because they’ve underperformed Chevron and their peers for a long time. To the extent that DE Shaw can speed up this process, I would say that is positive and should be helpful to shareholders,” said Biraj Borkhataria, analyst at RBC Capital Markets.

DE Shaw declined to comment.

Engine No. 1 owns about $40 million in Exxon stock, a fraction of the $12 billion that Exxon’s main investor, Vanguard Group, oversees. For some, that tiny stake could put her at a disadvantage by staging a proxy fight that can cost $20 million. Exxon is valued at $184 billion and its stock price has climbed to $43.46 this week.

But some analysts think the fund may have found its way into Exxon.

“You can win proxy contests with very small stakes and the way you do that is to use your opponent’s weight against them,” said a person who advises companies against activists but could not. be publicly identified.

Reporting by Svea Herbst-Bayliss and Jennifer Hiller; edited by Gary McWilliams and Louise Heavens

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