CalPERS recently announced their intention to vote against all 12 Exxon board members and CEO Darren Woods at the oil firm’s shareholder meeting next Wednesday for allegedly attempting to “silence” their shareholders. The move came because the company took two ESG activists who submitted a stringent climate proposal to court. Unfortunately, this decision is simply another political stunt from CalPERS, who has a history of using our state retirees’ pensions to score political points rather than focus on ensuring state workers’ entitlements are funded.
CalPERS condemned Exxon for filing the lawsuit in a federal court, instead of asking the Securities and Exchange Commission (SEC) for its blessing to keep a proposal the proponent explained is intended to “shrink” the company – which would ultimately hurt shareholders – off the annual meeting ballot.
In their statement, CalPERS insisted that the SEC is a fair forum, but forgot to mention that the SEC has done everything in its power to make it easier for frivolous shareholder proposals to make it onto corporate proxies. Ever since the start of the Biden Administration, SEC Chairman Gary Gensler has pursued rules and policies to make it easier for activists to submit shareholder proposals to advance an ideological agenda rather than provide shareholders with a forum to propose ideas to increase shareholder value.
Specifically, in 2021 the SEC changed its policy dictating which shareholder proposals it would allow on corporate ballots to explicitly permit any proposals dealing with issues of “broad social significance.” Previously the Commission only allowed these types of proposals when the issue in question was directly related to the target company and put more limits on how prescriptive shareholder proposals could be to ensure management had discretion to implement their business strategy.
Since that change an unprecedented number of proposals dealing with progressive political causes, namely climate, diversity, equity and inclusion, have been voted on and consistently rejected by shareholders. Last year, the change even prompted ESG fan Blackrock to state the quality of shareholder proposals declined because many proposals were too prescriptive and therefore the asset manager would support fewer proposals, despite its general support for the environmental and social goals the proposals are intended to address.
Given the circumstances, Exxon decided to ask the court to interpret the SEC’s own rules on shareholder proposals in order to have a less biased examination. Judicial review is sorely need in light of the SEC’s ever-changing interpretation of its own rules on shareholder proposals and the increasingly political nature of proposals. If successful, Exxon will have done its own shareholders as well as the shareholders of all public companies a big favor.
Exxon’s ask of the court is simple and uncontroversial: protect our public markets by affirming the rules governing the shareholder proposal process that’s meant to empower shareholder and company collaboration instead of creating a company-funded forum for activist grandstanding.
Exxon’s recent track record suggests that it is focused on short and long term returns for their shareholders. In fact, Exxon earned a record profit $7.6 billion in 2022 and also posted strong performance in 2023, allowing the company to pay their investors nearly $15 billion in dividends in 2023 alone.
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Unfortunately, California’s public workers are not as lucky as those invested directly in Exxon. CalPERS regularly succumbs to political pressure and has consistently bad performance. From mid-2022 to mid-2023, a report from the Pacific Legal Institute noted that CalPERS only achieved a 5.8 percent return on their investments versus the 17.6 percent return earned by investors in the S&P 500. This poor performance followed what CalPER’s investment chief dubbed as a “lost decade” for failing to invest in private equity and trailing peer pension funds in almost every asset class.
Perhaps CalPERS should follow Exxon’s lead and focus on their core function of making good investments for the hardworking public employees of California instead of leveraging the pension to virtue signal to climate activists.
Stephen Bainbridge is the William D. Warren distinguished professor of law at UCLA School of Law.
