Exxon Mobil’s shareholders have voted to replace at least two of the company’s 12 board members with directors who are seen as better suited to fight climate change, bolster Exxon’s finances and guide it through a transition to cleaner energy.
The results, which Exxon called preliminary, were announced by the company after its annual shareholder meeting Wednesday. Exxon said that because of the complexities of the voting process, inspectors might not be able to certify final voting results for “some period of time.” It was unclear whether one additional board member was also unseated in the shareholder vote.
Regardless of the final tally, the outcome represents a setback for Exxon’s leadership. It coincides with growing pressure on publicly traded companies to more urgently revamp their businesses to address what critics see as a intensifying global crisis.
On Wednesday, a Dutch court ordered Royal Dutch Shell to cut its carbon emissions by a net 45% by 2030 compared with 2019 levels in a landmark case brought by climate activism groups. The court ruled that the energy giant had a duty to reduce emissions and that its current reduction plans were insufficient.
The dissident slate of Exxon directors was proposed by a hedge fund called Engine No. 1, which asserted that the company’s current board was ill-equipped to handle the transformations that are reshaping the energy sector.
The alternative directors put forward by the hedge fund were also backed by many of the nation’s most powerful institutional investors. The vote reflected a broader push among consumers, investors and government leaders to pivot away from fossil fuels and invest in a future in which energy needs are increasingly met with renewable sources.
While the votes were being tallied, Exxon paused the shareholder meeting to allow people more time to vote. Anne Simpson, a managing director at the California Public Employees’ Retirement System, known as CalPERS and one of the institutional investors that backed the alternative slate of directors, called that move “highly unusual.”
Nevertheless, it was a “day of reckoning” for Exxon and for investors, Simpson said.
On the hot-button issue of climate change, she said, “investors are moving from talk to action, and it’s also going to reverberate around board rooms internationally.”
In addition to CalPERS, which is America’s largest pension fund, other major institutional investors that joined the challenge to Exxon’s leadership included the New York State Common Retirement Fund and the California State Teachers’ Retirement System, known as CalSTRS.
“It’s a historic vote that represents a tipping point for companies that are unprepared for the global energy transition,” said Aeisha Mastagni, a portfolio manager at CalSTRS.
The investors who backed the alternative group of board members had complained that compared with some other oil giants, Exxon has failed to commit itself sufficiently to cleaner energy, from wind, solar or other sources.
Companies sometimes work with dissident shareholders to accept suggested changes to boards. Exxon, though, had resisted the challenge. It argued that it was already committed to addressing the climate crisis, with plans to add new board members, including one with expertise in climate change. It has also highlighted its plan, still in the early stages, to use the Houston Ship Channel to capture and store carbon dioxide offshore.
The company also said it was satisfied with its existing directors.
“Our current board of directors is among the strongest in the corporate world,” said Darren Woods, chairman and CEO of Exxon, adding that the board provided exceptional guidance during a particularly tough period for the industry.
Among other problems, oil companies have struggled since the viral pandemic significantly reduced demand for fuel. Exxon lost $22 billion in 2020 and reported its largest-ever losses in the fourth quarter.
During Wednesday’s shareholder meeting, Charlie Penner, head of active engagement for Engine No. 1, asserted that “no matter the outcome of today’s vote, this is a board that needs to look in the mirror.”
The two candidates whom Exxon said shareholders elected from the Engine No. 1 slate were Gregory Goff, a former CEO of Andeavor, a petroleum refining and marketing company formerly known as Tesoro; and Kaisa Hietala, a former executive vice president of renewable products at Neste. In that position, Hietala was credited with boosting the company’s renewable diesel and jet fuel offerings.
Exxon said it had not yet determined whether a third dissident board candidate put forward by Engine No. 1, Alexander Karsner, had also been elected. Karsner, a senior strategist at X, Alphabet Inc.’s innovation lab, has been an investor in energy infrastructure and clean-technology startups.
In addition to choosing the two dissident board members, shareholders elected eight current members of Exxon’s board. Just who would fill the remaining two seats on the board was too close to call, Exxon said. Vying for those two seats were four people nominated by Exxon and one who was nominated by Engine No. 1.
Exxon did not say when the final results would be released.
Across the economy, climate-related initiatives are gaining momentum in corporate board rooms. At least 25 climate-related shareholder proposals made it onto shareholder ballots this year. Those that had been voted on before the Exxon vote received support from 59% of shareholders on average, according to Institutional Shareholder Services.
That is up substantially from 2015, when Glass Lewis, a firm that advises institutional investors, reviewed 14 shareholder proposals that sought additional disclosures on climate-related issues, such as the financial risks posed by a changing climate or by climate-related regulations. None of them succeeded.
In 2017, there were 21 such shareholder proposals that went to a vote; three received over 50% approval, Glass Lewis said.