Exxon is discussed in The Bob Zadek Show as a case study in the politicization of corporate governance. The relevant excerpts come from a single episode, a 2022 conversation with Paul Atkins about what the episode frames as the political pollution of capital markets. Exxon appears there as the concrete example of how activist investors and large institutional asset managers can win seats on a company’s board against the preferences of individual shareholders. The excerpts do not otherwise describe Exxon’s history, operations or finances.
The board battle
Bob Zadek introduced the Exxon example by recalling that the company had lost a battle over members of its board of directors, in which activist groups not concerned about maximizing profits but pursuing other goals got onto the Exxon board. He described this as a simplification and asked Paul Atkins to explain what happened.
Atkins placed the episode a couple of years back, when Exxon’s returns were not doing well and energy prices were very low. He said Exxon faced pressure from institutional investors, some of whom argued the company should get out of oil and gas because it was bad for the environment, and who were pursuing zero net emissions, trying to change Exxon’s strategy and its investments in new oil and gas fields toward alternative energy types. A single-purpose hedge fund, Engine No. 1, was put together and ran what Atkins called a short slate of directors — three against the other directors put up by the board’s nominating committee. Because large investment management funds, in particular BlackRock, State Street and Vanguard, switched their normal voting, which had usually been with management, they voted for the insurgent directors, each of whom won a majority and took a seat as a director. Atkins said this was big news in investment management and corporate governance circles and shook everything up, and that it got the whole discussion going about ESG. He noted that those three firms have some of the largest holdings in index funds, that Vanguard has very low fees in its funds, and that they had accumulated a lot of assets under management; combined with union pension funds, state pension funds and other things, they were able to throw the insurgent slate over the top. The Political Pollution of Capital Markets (2022)
Zadek asked whether it was possible to make informed speculation on the effect on Exxon of the activist directors gaining seats, or whether it was much ado about nothing, and what about the Exxon experience ought to concern the investing public. Atkins said Exxon has been around a long time and prides itself on always paying a dividend, and that unlike some other companies it still has a lot of individual investors holding its stock. He said he understood the individual investor group voted with management more — some 90-some percent of those shareholders voted for management — whereas it was the institutional investors voting other people’s money that had the insurgent slate win. He framed the question as whose interests are being represented: if the normal individual investors are behind management strategy and the institutional investors say the company needs to get out of oil and gas, maybe that looked fine a couple of years ago but now it does not look so fine, and there are other opportunities out there, with a big demand still for the energy provided by oil and gas. He said Exxon has announced more investment in what he called sustainable type areas, that money is not infinite, so some investments are going to be changed and the strategy of the firm may change, that he is not privy to what it looks like inside, and that time will tell. He asked whether pressure points will hurt Exxon in the long run, and whether three insurgent directors pressuring management to do something else is best for the company, concluding that ultimately it is the investors putting money in who will either get the benefit or pay the price of those wrong decisions. The Political Pollution of Capital Markets (2022)
Shareholder democracy and the Wall Street Rule
Zadek drew two thoughts from the account. He said Atkins had quoted an amazing statistic that 97% of the individual investors supported the existing Exxon board, while a substantial majority of institutional investors, investing somebody else’s money, voted against existing management. On that assumption, he said, the individual investors’ vote does not count, and is reversed and offset by the private vote of the tiny handful of people making investment decisions at BlackRock, so that the whole shareholder democracy has been torn apart. He added that when Atkins said it may not be good for Exxon, what he was really saying is that it is not good for Exxon’s employees, suppliers, creditors and investors, and that the woke voting of institutional investors, voting in the way that appeals to the private egos of the management of BlackRock, carries collateral damage for people who do not get a seat at the table. He called this not an eye-rolling matter but one with profound effects upon the economy. The Political Pollution of Capital Markets (2022)
Atkins qualified the figure, saying he did not remember whether it was over 90% and did not know about 97%, but that the percentage of individual investors voting to support management at Exxon was 90-something. He then described the old Wall Street Rule: historically, if you had shares with a broker, the broker would send you the proxy statement and ask how to vote your shares, and up until about 2010 the brokers would follow the Wall Street Rule, which was ensconced in stock exchange rules, so that for uninstructed votes they would vote with management, on the reasoning that an investor happy with his investment stays and one who does not like management or the direction of the company sells and puts his money elsewhere. Under the Obama administration, he said, the SEC strong-armed the New York Stock Exchange and NASDAQ to change their rules and do away with the Wall Street Rule, so that for uninstructed votes on these sorts of shareholder questions the brokers will not vote the individuals’ shares. That, he said, has given more power to union pension funds and other activist funds because individual votes, which normally are voted by management, do not count so much. He connected this to Alinsky and to people usually on the left who have figured out that they cannot get things through Congress because of the even division there and the rules in Congress, and who increasingly try to get things through regulation, especially in the Biden administration at the SEC and elsewhere, to have investment go in ideologically acceptable ways. He said they have realized they can do things through the private sector and through investment managers to put pressure on companies to achieve Net Zero by arbitrary dates such as 2030 or 2050, and to get pledges out of investment managers to achieve their goals that way, leaving open whether that is in the best interests of workers and investors trying to save for the future and get the best return. The Political Pollution of Capital Markets (2022)
Across episodes
Exxon is named in the excerpts of two episodes, but only one treats it as a subject. In the 2017 conversation with Ed Conard, Exxon appears once, in passing, when Conard says it is much harder to see the value created when you are talking about the CEO of Exxon or the CEO of Time Warner, because it is going on behind the scenes, so people are more leery and believe there is more corruption, crony capitalism, luck and nefarious dealings. Debunking Inequality Myths with Ed Conard (2017) The 2021 conversation with Lisa Conyers concerns property tax abatements in Louisiana and does not mention Exxon. Welfare for the Rich? (2021) The excerpts therefore show no development in the treatment of Exxon across episodes; the board battle is discussed only in the 2022 episode.
What the sources do not cover
The excerpts do not state Exxon’s founding date, headquarters, business segments, revenues or any financial results beyond Atkins’s remark that its returns were not doing well when energy prices were very low. They do not name the year of the board vote, the full slate of directors, the outcome for Exxon’s strategy beyond announced investment in what Atkins called sustainable areas, or any subsequent election. They do not describe the legal or regulatory framework of the proxy rules beyond Atkins’s account of the SEC, the New York Stock Exchange and NASDAQ, and they break off mid-sentence at the end of the second excerpt.