Saturday, June 3, 2017

And the Lord God took the shareholder, and put him into the garden of Eden to dress it and to keep it.

I watched with interest the battle at Exxon over a shareholder proposal requesting that the company provide more detailed disclosures about the risks posed by the Paris climate accord.  Last year, the same proposal won 38.1% of the vote; this year, prior to the vote at Exxon, shareholders at Occidental Petroleum approved a similar proposal.  Moreover, Blackrock and State Street have recently declared that they want to see more corporate disclosures about the impact of climate change.

As a result, things at Exxon were unusually heated.  Reportedly, Exxon was lobbying shareholders in advance of the vote.  The matter presumably was particularly sensitive because Exxon is being investigated by the NY and Mass AGs regarding the accuracy of its climate change disclosures to investors.

As this was going on, of course, it became increasingly clear that Trump was planning to withdraw the United States from the Paris accord.  Now, it’s not obvious what immediate impact that withdrawal has on companies like Exxon – after all, most other countries remain committed, and Exxon does business internationally.  Still, it raised the question:  Would shareholders decide the matter was less important, now that the US had essentially declared a more hands-off approach to climate change?  Or would shareholders view the matter as potentially more important, to fill the void left by regulators?

And we got an answer, sort of:  62.3% of shareholder votes bucked Exxon management and favored the proposal, a dramatic increase from last year.  We don’t know, of course, what influence Trump had on that vote, but it does suggest shareholders did not view the issue purely in (United States) regulatory terms; instead, they view climate change as a real risk to Exxon regardless of the (US) regulatory impact, and also believe their role includes monitoring that risk.

The Trump administration has made clear that it intends to take a more hands-off approach to regulation in a variety of areas; it will be interesting to see how shareholders view their role going forward (and okay, yeah, this is something I discuss in my paper, Reviving Reliance.  /plug).

Of course, another wrinkle concerns the Republican proposal to severely restrict shareholders’ ability to place proposals on the corporate proxy, reportedly scheduled for a House vote on June 8 (though its prospects in the Senate are uncertain).  Shareholders can’t pressure management if they can’t communicate with them.  And large shareholders like Blackrock can of course continue to have private negotiations with management, but I rather suspect that, at least to some extent, these asset managers respond to their own shareholder and customer demands for socially responsible governance.  (Witness State Street’s brilliant marketing stunt.  As money pours into index funds, State Street has very visibly distinguished itself from the pack.)  Point is, without shareholder proposals, there is no public record of funds' positions on these issues, and that lever of pressure is eliminated.

Fearless1

http://lawprofessors.typepad.com/business_law/2017/06/and-the-lord-god-took-the-shareholder-and-put-him-into-the-garden-of-eden-to-dress-it-and-to-keep-it.html

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