Better Understanding the ExxonMobil Situation 
Next Generation BoardsSustainable LeadershipBoard Effectiveness
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July 05, 2021
Next Generation BoardsSustainable LeadershipBoard Effectiveness
Executive Summary
The institutional investors have been increasingly vocal and specific about their expectations of boards and directors regarding board composition and ESG.
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The Harvard Law School Forum on Corporate Governance

Jack “Rusty” O’Kelley and Andrew Droste argued that the ouster of three sitting board members at ExxonMobil shows that institutional investors and other large shareholders will act against executives who do not take action on ESG and climate change.

Writing in The Harvard Law School Forum on Corporate Governance, O’Kelley and Droste explained how boards must be proactive in assessing board skills and risk generally, be able to build sustainable relationships with key investors to ensure they maintain their license to operate, and remember that even investors with smaller stakes can cause large waves in the right circumstances.

Over the past five years, the largest institutional investors have been increasingly vocal and specific about their expectations of boards and directors regarding board composition and ESG. Despite this, they have rarely acted on those concerns when it comes to director voting. However, the ExxonMobil proxy fight may be a sign things have changed. Twenty twenty-one will go down as the year that large institutional investors aligned their voting with market communications and voted out three sitting board members at ExxonMobil. The world’s largest shareholders have now demonstrated that they are willing to act and that they expect executives to take action on ESG and climate change. Importantly, this is a lesson that board composition matters and director skills need to align with a company’s strategy. 

At the end of May, the US proxy season reached its apex and the long-awaited contest between ExxonMobil and Engine No. 1 came to a vote. Engine No. 1, an activist hedge fund with just .02% ownership in the company, argued throughout the contest that there were shortcomings in oil and gas experience on ExxonMobil’s board, slow strategic transitioning to a low carbon economy, and historic underperformance and overleverage relative to peers. The fund proffered four board director candidates to ExxonMobil investors, three of whom were ultimately elected to the 12-member board—and as a result, three sitting board members were ousted. 

While this specific vote surprised many people, the increasing focus on ESG should not.

Read full article here.