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nytimes – How Exxon lost a board battle with a small hedge fund

At the beginning of last year, Mr Penner left Jana with the ambition to create his own fund. But when the pandemic hit, he held talks to join Mr James’ fledgling company – and brought with him an ambitious idea he had been weighing for some time: Exxon.

The $ 250 billion giant was ripe for the disruption, both believed: Exxon was lagging behind rivals in finding ways to reduce its carbon footprint, which would end up costing the company financially. Its board did not have the expertise to pursue a more aggressive plan, they believed. And the oil giant had a reputation for being authoritarian with its shareholders.

The key to victory, according to two people familiar with the strategy of the No.1 engine, who spoke on condition of anonymity to refer to private interviews, appealed to large mutual fund investors who are committed to making their portfolios greener. Exxon’s three largest shareholders – Vanguard, BlackRock and State Street, who together hold one-fifth of the company’s shares – had pledged to reduce carbon emissions from companies they invest in to zero by 2050.

Engine No. 1 announced its campaign against Exxon in December. A pension fund for California teachers and the Church of England endowment supported the effort.

After a flurry of phone calls, Exxon chief executive Darren W. Woods and senior independent director Kenneth Frazier held a Zoom call with executives of the No.1 engine on January 22. During the meeting, according to two people with knowledge of the matter, who spoke on condition of anonymity to discuss private discussions, Mr Frazier adopted a conciliatory tone – at one point he made a peace sign, one of the people said – but said the company had not considered the No. 1 engine for candidates to qualify. Mr Penner responded that the company should reconsider its decision and insisted that its four nominees sit on Exxon’s 12-member board.

After the call, both sides girded themselves for battle.

Over the next five months, a war of words ensued, as company directors and insurgent activists issued statement after statement, with each side defending their cause. Those efforts cost the No.1 engine more than $ 15 million, according to a person with knowledge of the matter.

For Exxon, the aim was to persuade investors that it had viable plans to prepare for a low-carbon future, while arguing that the No.1 engine had presented an unworkable alternative plan and candidates for the unqualified board of directors. The company added new directors to its board without input from the No.1 engine, a move that infuriated the fund.

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