(Bloomberg, 17.May.2021) — The activist seeking to revamp the board of Exxon Mobil Corp. received a boost Monday with another prominent shareholder advisory firm recommending investors support two of its four nominees.
Glass Lewis & Co. said it agreed with activist investor Engine No. 1 that Exxon’s board had failed to demonstrate the foresight needed to position the company for long-term value creation. The advisory firm said shareholders should elect Gregory Goff and Alexander Karsner from Engine No. 1’s slate to the board because they would bring a “fresh independent perspective and relevant industry, operational and regulatory experience.”
“While Exxon claims to have evolved its strategy and maintained its historical leadership position among oil majors, our review finds the company’s competitive position and financial returns have eroded, and its stated strategy to address the underlying reasons for this diminished performance is generally insufficient,” Glass Lewis said in its report late Monday.
The advisory firm said Exxon’s leading position in the industry is “slipping” and its long-term shareholder returns have lagged certain European peers. Its long-term return on capital has also deteriorated to levels at or even below its estimated cost of capital, Glass Lewis said.
“While the Exxon board has recently refreshed itself with needed oil and gas, capital allocation, investor perspective and climate-related business transformation experience, we believe the board remains lacking in critical areas, such as energy and cyclical business experience, scientific and technological research expertise and regulatory experience,” Glass Lewis said.
Representatives for Exxon and Engine No. 1 were not immediately available for comment.
Last week, another advisory firm, Institutional Shareholder Services Inc., said it agreed with the first-time activist’s arguments that more independent industry expertise was needed on the board to help improve its performance and guide Exxon through its energy transition plans. It urged investors to support three of Engine No. 1’s nominees.
Engine No. 1 has been locked in a war of words with Exxon since disclosing a stake in Exxon in December. The San Francisco-based investment firm owns roughly a $57 million stake in the $263 billion Exxon. Its push for changes has garnered the support of pension plans in California and New York, as well as the Church of England and insurer Legal & General Group Plc.
Exxon, for its part, has argued that it has one of the strongest boards in corporate America, and that additional changes were not necessary after it appointed three new directors, including activist investor Jeff Ubben, earlier this year. It has also argued that Engine No. 1 refused to engage with it and was focused on Exxon quitting its existing business, something it argues puts its $15 billion annual dividend at risk.
Glass Lewis said it agreed with Engine No. 1 that past refreshment of the board, in accordance with the company’s “seemingly outdated framework” has not resulted in a significant change in strategic direction or improvement in performance.
“We believe incremental changes will help to ensure the Exxon board is composed of individuals who possess the range of relevant, successful experience, skillsets and perspectives that will be needed for the company to address the critical issues it faces, and to more fully explore the potential pathways and role Exxon might play in the energy sector going forward,” the advisory firm said.
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By Scott Deveau
