June 1, 2017

Shareholder Proposals: Climate Change Approved at ExxonMobil!

We haven’t seen many successful climate change proposals in past years, but this year is different. Last week, Broc blogged about the proposal at Occidental Petroleum for a “2-degree scenario analysis” – notably passing with BlackRock’s support. Yesterday, ExxonMobil shareholders approved a similar proposal – with 62% supporting! – bringing the tally to three major companies this month (PPL being the third).

This Washington Post article suggests that in addition to BlackRock & State Street, Vanguard also voted in favor of the ExxonMobil proposal – which would be consistent with its recently updated E&S policies. But as noted in this article, this would be a break for Vanguard because they rarely challenge management. This new trend in institutional investor voting practices means we’ll probably see many more climate proposals in the near future.

As far as PPL, Oxy & ExxonMobil, this excerpt from Cydney Posner’s blog explains the next steps:

As is typical, these proposals are all precatory, but, as you know, companies do feel the heat when a proposal receives a majority vote in favor. According to Reuters, a PPL spokesman said that the company “is committed to sustainable energy” and that the board “‘will carefully consider the results and determine the best path forward.’”

Reuters also reported that the ExxonMobil CEO indicated that “the board would review the request.” Bloomberg BNA reported that the Chair at Occidental acknowledged shareholder support for the proposal and said that the company looked “forward to continuing our shareholder engagement on the topic and providing additional disclosure about the company’s assessment and management of climate-related risks and opportunities.” Reuters also noted that proposals have been submitted at several other companies but were withdrawn the companies conceded to take steps the proponents viewed as acceptable.

Are “Operating Metrics” the New Non-GAAP?

Earlier this month, SEC Chief Accountant Wes Bricker remarked that lessons from recent non-GAAP scrutiny also apply to disclosure of operating metrics, forecasts & other kinds of supplemental information:

I believe that much of the recent experience with non-GAAP financial metrics also provides lessons for other kinds of reporting by companies. Similar to non-GAAP financial reporting, key operating metrics and forecasts may also be distorted via bias – for example, painting a potentially misleading picture – error, or fraud, all of which undermine the credibility of the reporting. Therefore, it is important that companies proactively and thoughtfully address risks to their reporting.

Companies should first understand the other information being reported, including how operating metrics are defined.

Companies then should have adequate disclosure controls and procedures in place. In some respects, these other reporting processes may require more steps than some GAAP processes, not fewer. This is because, for example, a company’s other reporting does not have the benefit of standard-setting due process, which solicits stakeholder views on a representationally faithful manner of reporting a particular event or transaction and the types of disclosures needed by financial statement users. When a company determines a supplemental reporting framework, it does not have the benefit of a standard setter’s due process and must look to its own policies, audit committee, and other stakeholders for input.

Finally, companies should consider whether it would be beneficial to obtain insight into their other reporting processes from those outside of the finance and investor relations functions. Sometimes a fresh perspective can provide new insight into potential risks and ways to maintain the effective operation of essential controls and procedures.

This blog from Cooley’s Cydney Posner delves into more details. She notes that the SEC’s accounting staff used the big AICPA conference last year to forewarn of their impending crackdown on misleading non-GAAP practices. We’ve been talking about Corp Fin’s updated CDIs – and the related comment letters and Enforcement sweep – ever since.

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Liz Dunshee