The Illusion of Success: A Critique of Engine No. 1’s Proxy Fight at ExxonMobil

22 Pages Posted: 10 Aug 2021 Last revised: 4 Nov 2021

See all articles by Bernard S. Sharfman

Bernard S. Sharfman

affiliation not provided to SSRN; RealClearFoundation; Law & Economics Center at George Mason University’s Antonin Scalia Law School

Date Written: August 9, 2021

Abstract

With less than $40 million worth of ExxonMobil common stock in hand, but with $30 million to spend, Engine No. 1 executed a proxy fight that succeeded in getting three of its four nominated directors elected to the board of ExxonMobil. This victory was viewed as a success by environmentalists and Environmental, Social and Governance (“ESG”) investors.

To defend itself in the proxy fight, ExxonMobil was estimated to have spent $35 million. However, besides the money, it not hard to believe that thousands of hours of ExxonMobil management time (board members, executive management, and other managers down the line) were also spent on the effort.

Unfortunately, even after all these resources expended, this Article finds that nothing was really accomplished. The hedge fund activism of Engine No. 1 did not provide “a roadmap for Exxon[Mobil] to improve its performance or address the difficult questions impeding meaningful progress toward climate objectives.” In regard to the latter, Engine No. 1 did not provide the company with specific recommendations on how it could transition from a global leader in oil and gas production to a global leader in the production of clean energy. Also, there is no evidence that Engine No. 1 has served as a corrective mechanism (mitigating managerial inefficiencies) at ExxonMobil consistent with this Article’s theory of hedge fund activism. Moreover, and perhaps most importantly, Engine No. 1 may have created a deadly distraction in our global fight against climate change, a fight that should be taken on by governments all over the world, not hedge fund activists. The only apparent positive result of this activism, at least from the perspective of Engine No. 1, is that the entity got a huge marketing boost in its efforts to raise funds for its exchanged traded funds.

Keywords: hedge fund activism, corrective mechanism, proxy fight, climate change

JEL Classification: G34, G38, K22

Suggested Citation

Sharfman, Bernard S. and Sharfman, Bernard S., The Illusion of Success: A Critique of Engine No. 1’s Proxy Fight at ExxonMobil (August 9, 2021). Harvard Business Law Review Online, Forthcoming, George Mason Law & Economics Research Paper No. 21-20, Available at SSRN: https://ssrn.com/abstract=3898607 or http://dx.doi.org/10.2139/ssrn.3898607

Bernard S. Sharfman (Contact Author)

affiliation not provided to SSRN

RealClearFoundation ( email )

Law & Economics Center at George Mason University’s Antonin Scalia Law School ( email )

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