Pimps and Arms Dealers: ExxonMobil’s War Against Nonprofit Insurgents

Earlier this year, ExxonMobil filed what amounts to a SLAPP suit against environmental nonprofits pushing a shareholder proposal that might have reduced Exxon’s carbon footprint and profits.  It’s a SLAPP suit because Exxon doesn’t like the ideas its nonprofit shareholder is advocating.  “Follow This,” and Arjuna are environmental nonprofit organizations employing a recognized insurgent strategy.  Follow This is tax exempt, but Arjuna is an investment firm that follows ESG principles.  Using charitable donations and private investments, they bought Exxon stock so, as shareholders in a publicly traded corporation, they could force consideration of an ESG shareholder proposal.  It is not an illegitimate or unused strategy.  During the Vietnam War, nonprofits infiltrated Dow Chemical to force a vote against napalm manufacturing. The SEC affirmed their rights to do so.  At the time, Dow was making a killing (pun intended) selling napalm to U.S. forces in Vietnam.  And history shows that nonprofits opposing its use were justified.  They taught us something about humanity.  In hindsight, we can say that nonprofit shareholders have a legitimate interest in tempering our greed.  They make us better.  Most of us invest in oil and gas or munitions through pension funds, I bet.  We are all fossil fuel pimps and arms-dealers.  Nonprofit shareholders like Follow This — and even privileged white kids [mostly] camping in protest on the quad — force us to consider the consequences of our legal profit-making.  So I was struck by the suggestions of illegitimacy or nefariousness in the way Exxon described the organization’s use of the insurgent strategy against Exxon.  The actual shareholder proposal seemed pretty milquetoast to me:

Resolved: Shareholders support the Company, by an advisory vote, to go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions across Scope 1, 2, and 3, and to summarize new plans, targets, and timetables.

I don’t know what “Scope 1, 2, and 3” means but the proposal seems to do nothing more than express a sentiment. Still, Exxon came out with guns blazing seeking to disqualify the proposal as against the corporation’s interests and its directors’ fiduciary duty to “get rich or die trying.”  From Exxon’s Texas federal district court complaint:

1. Most shareholders invest in companies to help the companies grow and see a return on their investment. But Arjuna and Follow This are not like most shareholders. Driven by an extreme agenda, they pursue what Follow This calls a “Goldilocks Trojan Horse” strategy: They (or their clients) become shareholders solely to campaign for change through shareholder proposals that are calculated to diminish the company’s existing business.

2. Arjuna and Follow This are aided in their efforts by a flawed shareholder proposal and proxy voting process that does not serve investors’ interests and has become ripe for abuse by activists with minimal shares and no interest in growing long-term shareholder value.

3. Arjuna’s mission is to “shrink” energy companies, and its chief investment officer was found to be “manifestly biased” against ExxonMobil by a New York court.1 (Emphasis added). Follow This explains in its governing documents and customer terms that it does not aim to achieve returns on behalf of its members through shares it acquires in energy companies.2 And its website states: “We buy shares in order to work on our mission to stop climate change, not to make a financial profit.”3 (Emphasis added).

4. To achieve their goal, Defendants take different approaches that are designed to take advantage of the current application of the shareholder proposal rules. Arjuna, an activist wealth management firm, represents clients who hold just enough shares in an energy company to be allowed to submit shareholder proposals. Those clients give Arjuna the authority to file a shareholder proposal and deal with all aspects of it.

5. Follow This maintains a website where it asks people to donate money so that Follow This can buy enough shares in ExxonMobil or other energy companies to establish the necessary toehold to submit shareholder proposals. Follow This solicits funds, buys shares, and holds them in a Follow This investment account. It charges a fee of €5 for each share purchased and purports to “assign” each share to the person who contributed the funds.

6. The contributors grant Follow This the “mandate and power of attorney” to use the shares to submit shareholder proposals to a company and vote the shares. With this authority, Follow This prepares and submits shareholder proposals that seek to transform the company.

7. Arjuna and Follow This have submitted numerous shareholder proposals to energy companies, including ExxonMobil. Although ExxonMobil’s shareholders have consistently rejected Arjuna’s and Follow This’s proposals, those proposals are expensive and time-consuming to address, and they are rarely designed to promote overall shareholder value. Instead, they are frequently at odds with the interests of investors who are seeking to obtain returns for their pensions, 401(k) plans, and other savings and retirement investments. Defendants’ proposal this year is no different.

Exxon’s suit led to significant push-back from CALPERS, and other public pension fund investors.  CALPERS accused Exxon of improperly silencing dissent. and even took the unusual step of opposing all the Directors standing for reelection at the last annual board meeting.  The incumbents won reelection anyway and the insurgents withdrew their proposal shortly after ExxonMobil filed suit. But Exxon is forging ahead with the suit anyway, presumably to foreclose future nonprofit insurgencies.  The Financial Times calls the case a “clash over shareholder rights and fiduciary duty.”  

I think its more a clash over shareholder rights to define fiduciary duties.  Certainly, there is a mountain of caselaw indicating that for profit fiduciaries are supposed to make money for shareholders, not engage in charity.  So Exxon paints the insurgents’ motivation as illegitimate.  But the caselaw treats making money as the only duty because caselaw assumes, reasonably, that shareholders want only to make money.  That is usually the case.  But surely, shareholders can explicitly define their goals differently even if it means losing money. Republicans are, as they have done so expertly with other labels, slowly putting the pejorative to ESG.  But its Republican efforts against ESG — investor rights — this is actually anti-capitalist.  Laws designed to foreclose investor choice are patently anti-capitalist.  Some capitalists, mostly Republican, want to establish the principle that ESG is heresy.  You gotta admire their skill so far. But ESG has only been anathema to fiduciary duties because the law assumes shareholders are only in it to make money.  Shareholders, even under classic corporate theory, could always have decided to forego profit.  Wrigley and Ford did it in their capacities as shareholders.  They failed only by not adequately separating their alter egos as directors. 

Nonprofit shareholder insurgencies are entirely legitimate. They make all of us capitalist better people.  Even pimps and arms dealers need to be prodded to do what’s right, not just what’s profitable.  

darryll k. jones