May 27, 2021

Activist Wins at Least 2 Exxon Board Seats in Historic Campaign

This year’s wild proxy season continued yesterday when ExxonMobil announced that a dissident won at least two seats on the company’s 12-member board. The dissident – Engine No. 1 – has waged a campaign that pressures the company to set a “climate transition” plan that would result in net-zero emissions from the company – and its products – by 2050.

Considering Engine No. 1’s ownership stake in Exxon is only about 0.02%, it’s remarkable that the hedge fund pulled this off. It came at no small cost – this has been one of the most expensive proxy fights ever, with Exxon spending at least $35 million and Engine No. 1 spending $30 million. Reports are based on preliminary voting results, so until the final vote results are released it’s unclear how close the vote was for the two seats that were won. As of yesterday afternoon, there were two more seats still up for grabs. The vote was so hotly contested that Exxon called a recess during the meeting as votes were still being cast.

This WSJ article summarizes the proxy contest. Here’s a snippet about yesterday’s drama:

Both sides feverishly made their case to investors until the last minute. Exxon delayed the closing of the voting by an hour Wednesday morning and Engine No. 1 said the company was calling investors to ask them to change their votes. In a message sent to shareholders, the fund urged them ‘not to fall prey to any such strategic efforts.’

In another somewhat new practice, Vanguard posted a vote bulletin saying it backed two dissident nominees and BlackRock posted its vote bulletin for Exxon’s meeting yesterday afternoon, nearly in real time. As I blogged yesterday morning, word was already out that BlackRock was planning to support three dissident nominees. BlackRock said that, although Exxon had announced more commitments and transparency, it believes more urgent action is needed. Here’s an excerpt from BlackRock’s bulletin:

We believe that three of the four directors nominated by Engine No. 1 bring relevant private sector experience including independent U.S. energy production (Mr. Goff); renewable products, including wind energy (Ms. Heitala); and energy infrastructure, legislation and new energy technology (Mr. Karsner). Hence, we believe that this suite of directors will complement the skills and experience of the remaining incumbent directors, bringing fresh perspectives as well as successful track records of value creation for shareholders.

BIS supported the re-election of Mr. Frazier and Mr. Woods because our engagement with each of them over the past several months has given us greater confidence that they are prepared to internalize shareholder feedback, and lead the company, in their respective roles as Lead Independent Director and CEO, on a more ambitious course of action in adapting to the energy transition and responding to shareholders. We also believe some leadership stability is important in the context of the urgency with which the company is expected to deliver on its commitments.

Many predict the vote result will force the company to change its strategy, which has been fossil fuel focused. Institutional holders are signaling that they’re willing to take drastic action to reduce climate risks, which may also jolt the energy sector – and others. The vote is even more shocking in light of the fact that the company had already added three directors earlier this year in response to activist pressure, including Jeff Ubben. That means that if any additional dissidents are certified as elected, new directors would comprise at least half of the board.

As an exclamation point yesterday, shareholders not only approved a change in leadership, they also approved proposals calling for more info on climate lobbying and other lobbying activities, which weren’t supported by the board.

Whistleblower Awards Continue Rolling Along

Liz blogged back in March about a SEC whistleblower award and noted the Commission had already made 40 individual awards this year. Since then, the Commission has awarded more and last week announced a few more. First, there was an announcement of awards totaling more than $31 million in connection with two enforcement actions, with the awards divided between two whistleblowers in each action.

In the first order, the SEC awarded almost $27 million to two claimants who provided SEC staff with new information and assistance during an existing investigation, including meeting with the staff in person on multiple days. Their information and cooperation helped the Commission bring the enforcement action, which resulted in the return of millions of dollars to harmed investors.

In the second order, the SEC awarded one whistleblower an award of approximately $3.75 million and the other whistleblower an award of approximately $750,000. While both whistleblowers independently provided information that assisted SEC staff in an ongoing investigation, the whistleblower who received the larger award provided information and assistance that was more important to the resolution of the overall case.

Also last week, the Commission announced an award totaling more than $28 million and this one was in connection with an Enforcement Division action and a related action by another federal agency. Based on information received from the whistleblower’s attorneys, the WSJ reported that the award was in connection with a bribery settlement. Although the SEC’s whistleblower program provides that whistleblower’s can receive up to 30% of monetary penalties when their tips result in a successful enforcement action and when the penalties total more than $1 million, the WSJ said the $28 million award represented 10% of the monetary penalties collected from both the SEC and DOJ actions. It’s not entirely clear what led to the lower percentage award in this case, but the article does say that the settlement involved different regions than the one initially identified by the whistleblower.

Since first issuing an award in 2012, with last week’s awards, the agency has awarded approximately $903 million to 163 individuals. As these awards continue rolling along, it’s looking like it may be possible for the agency to surpass $1 billion in total awards under its program sometime later this year.

Former Chief of SEC Whistleblower Office Joins Arnold & Porter

The SEC announced back in April that Jane Norberg was leaving the agency that month, she had served as Chief of the agency’s Office of the Whistleblower. Jane had been with the Office since near its inception in 2012 serving as its first Deputy Chief and, since 2016, its Chief. With what’s seeming like pretty regular whistleblower award announcements, it appears that securities enforcement practices could see a good volume of work and earlier this week, Arnold & Porter announced that Jane has joined the firm’s Securities Enforcement and Litigation Practice as a partner in its Washington DC office. In the announcement, Richard Alexander, the firm’s chairman, commented that Jane’s joining the firm at a time when whistleblower-driven investigations and enforcement actions are ticking up. A Bloomberg piece citing Jane’s move to private practice quotes her as saying she ‘expects this administration to be very pro-whistleblower.’

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– Lynn Jokela