ExxonMobil’s recently announced retail voting program has prompted a negative reaction from certain segments of the corporate governance industrial complex, so I guess it was inevitable that somebody would eventually cobble together a lawsuit challenging the program.  According to this Investment Executive article, “eventually” is now:

The City of Hollywood Police Officers’ Retirement System has filed a proposed class action in U.S. district court on behalf of Exxon shareholders, against the company and its board of directors, alleging that they are breaching their fiduciary duties in connection with the company’s adoption of its “retail voting program.”

The program, which was approved by the U.S. Securities and Exchange Commission (SEC) last month, enables the company to automate retail investors’ votes in favour of management.

The proposed lawsuit is seeking an injunction to prevent the company from introducing the program, which it alleges infringes on shareholders’ voting rights and is designed to stifle shareholder dissent and entrench management.

It argues that the program impairs the voting rights of shareholders that opt into the program, “based on inadequate disclosures.” It also argues that the votes of shareholders that can’t or don’t opt in will be diluted.

By adopting the program, the lawsuit alleges that the company’s directors breached their fiduciary duties.

“By attempting to weaponize a largely disengaged body of retail shareholders … the [program] affirmatively violates federal law, and constitutes both an unlawful entrenchment device and a breach of fiduciary duty under New Jersey law,” the plaintiffs’ filing alleged.

As I mentioned in my earlier blog, I was already planning to enroll in any similar program that the companies I invest in offer, but now that I know I’m allegedly being “weaponized,” I’m even more eager to sign up. I’ve never been weaponized before, and frankly, it sounds kind of sexy. (I don’t get out much.)

It didn’t take long for Prof. Ann Lipton to flag one of the potential problems with this lawsuit – the uncertainties concerning whether shareholders have a right of action to bring claims alleging violations of the proxy rules. I don’t know all of the intricacies about implied private rights of action, but my guess is that this is very much a live issue in the case. The federal courts haven’t been kind to claims asserting private rights of action under Rule14a-9 in recent years, and to the extent that other provisions of the proxy rules are claimed to provide such a right, my guess is that they’ll be equally skeptical.

By the way, check out this blog from Broc Romanek highlighting a Cooley Alert that contends some of the arguments asserted against Exxon’s program are misleading.

– John Jenkins