ExxonMobil Targeted by Activist Investor Seeking Board Changes

Activist investor Engine No. 1 is calling on ExxonMobil to refresh its board of directors in an effort to reposition itself for long-term, sustainable value creation.

Founded last week by Chris James, a tech investor who also founded Partner Fund Management, Engine No. 1 nominated a four-person slate to the energy giant’s board, contending that Exxon needs directors with a diversified level of insight into evolving trends, technologies, markets, and policies shaping the future of energy.

In a letter to the board, Engine No. 1 argued that Exxon is lacking a long-term plan to enhance and protect value, saying the company has little material exposure to newer growth areas despite its commitment to reduce methane emissions, participate in industry efforts to reduce carbon intensity, and invest in carbon capture and algae biofuel research.

Moreover, the activist investor lamented the company’s poor capital allocation strategy, which Engine No. 1 said has contributed to much of the company’s underperformance. “While the entire industry faces similar headwinds, ExxonMobil stands apart in its adherence to a long-term strategy of aggressive spending despite such declining returns,” Engine No. 1 wrote. 

Shares in Exxon have tumbled nearly 40% so far this year, compared with a 25% decline in the price of WTI crude oil.

Engine No. 1 also criticized Exxon’s failure to align management compensation with value creation for shareholders, noting that total compensation for CEO Darren Woods rose almost 35% from 2017 to 2019 despite the company’s negative cumulative total shareholder return (-12%) during that same period.

The campaign is a test for Engine No. 1, which aims to promote environmental, social, and governance (ESG) matters via “active ownership.” Charles Penner, a former partner at activist investor Jana Partners, is part of Engine No. 1’s founding team, alongside five others.

“Over the long-term, shareholder and stakeholder interests align, and companies that invest in their stakeholders are better, stronger companies as a result,” James said when announcing the firm. 

Pension fund CalSTRS, which owns over $300 million of Exxon’s stock, came out in support of Engine No. 1’s board nominations. “The alternate slate of directors has deep expertise in energy and other industries undergoing transformation that will address ExxonMobil’s financial underperformance, align incentives with shareholder value creation, and better prepare for the global energy transition” CalSTRS said.

Top shareholders of Exxon include Vanguard, BlackRock, State Street, Fidelity, and Geode Capital Management.

An Exxon spokesperson told Investopedia that the company is reviewing the letter before providing further comment.