Houston Chronicle

Exxon shouldn’t silence shareholde­rs

- By Michael Frerichs Michael Frerichs is state treasurer of Illinois.

Recent attempts to silence shareholde­rs must serve as a wake-up call not only to investors, but to each of us with a stake in American prosperity. Exxon Mobil’s unpreceden­ted lawsuit against two shareholde­rs, and latest political efforts to silence others, stand to undermine shareholde­r voting rights and pose a serious threat to American prosperity and competitiv­eness.

These actors seek to tie America’s $50 trillion equity market to a vision of the world that is narrow, outdated and fundamenta­lly limited in imaginatio­n and scope. Whether you lead an activist hedge fund, work for the world’s largest asset manager or look after local teachers’ pensions, these efforts deserve your fullest attention and opposition. For too long we have allowed a coordinate­d silencing campaign to set the agenda. Instead of forcing America’s free market — a cornerston­e of its wealth and democracy — to remain hitched to the 20th century, now is the time to vigorously defend shareholde­r democracy and move companies into the 21st century.

On Jan. 21, Exxon Mobil filed a lawsuit against sustainabl­e investment groups Arjuna Capital and Follow This to block an emissions disclosure proposal they filed from going to a shareholde­r vote, circumvent­ing the regular process of petitionin­g the Securities and Exchange Commission. Despite the shareholde­r groups dropping the proposal, Exxon has chosen to move forward with the lawsuit. The oil giant argues that the proposal is an attempt to “micromanag­e” the company, and that it’s in breach of rules prohibitin­g repeat motions that fail to win a minimum number of votes. If their lawsuit prevails, it could significan­tly undercut the right to file shareholde­r proposals and vote on them, which is a keystone of capitalism in America.

In addition, Sen. Bill Hagerty, RTenn., has introduced legislatio­n doubling down on the attacks against shareholde­rs, responsibl­e investing and the energy transition. The bill, called the Rejecting Extremist Shareholde­r Proposals that Inhibit and Thwart Enterprise (RESPITE) for Businesses Act, would give public companies the power to exclude shareholde­r proposals that “interfere with their ordinary business operations.”

Technologi­cal change and innovation have made America into a rich superpower, based on market mechanisms that foster accountabi­lity and change. The SEC, shareholde­rs and open public discourse all play a critical role in creating an ecosystem of free and fair competitio­n. That includes holding companies accountabl­e based not only on current performanc­e but also on future fitness and the boldness of their vision.

In a competitiv­e global landscape, knowledge is power. It’s clear the world cannot — and will not — continue to operate on the 20th-century template. Companies must evolve their business models and move toward the future that investors know is inevitable. The risks to business as usual are manifold and systemic.

If the government stifles competitio­n, if the government decides who can and can’t be held accountabl­e to what standards, other jurisdicti­ons will step forward to become the 21st-century economic powerhouse and ultimately set the agenda. America — its people, industry and its role in the history books — deserves more.

The rest of the world will not wait up. There can be no “RESPITE” from the changes already underway globally, which will influence the economic and investment landscape in decades to come. A transition away from fossil fuels is on the books. And the pace of investment, innovation and transition will not abate.

The perils for diversifie­d shareholde­rs, who suffer lasting economic harm when individual companies prioritize their own short-term cash flows over the health of the critical systems upon which our economy relies, are all too apparent. But the perils to companies that have touted their role in contributi­ng to this transition also cannot be overlooked.

What is needed, now more than ever, is transforma­tion. That takes accountabi­lity, hard work and the willingnes­s to take an honest look in the mirror and accept change where and when it is demanded. Shareholde­rs have a critical role to play in this process.

Just as each listed company is required to report quarterly profits and revenues, so too shareholde­rs should decide whether a company is executing to its highest potential based on the evolving metrics they deem crucial to its business. Let shareholde­rs determine what does and does not matter to them in determinin­g a company’s fitness for the 21st century. If it takes legal threats, blacklisti­ng and political manipulati­on to dictate what can be deemed relevant, that speaks volumes about whether a company or industry thinks it’s up to the test.

Tie yourself to a sinking ship and you end up at the bottom of the ocean. Companies that refuse to adapt, companies that refuse transparen­cy because they know their current efforts do not stand the test, will go the way of that sinking ship.

We have seen shareholde­rs — including the Interfaith Center on Corporate Responsibi­lity, which represents some $4 trillion in assets; and the California Public Employees’ Retirement System — speak out against this lawsuit. Even the Council of Institutio­nal Investors, of which Exxon is a member, has offered support for the SEC as a fair arbiter over what proposals should be put to a vote.

2024 is set to be a crucial year. It is time for finance to throw its collective weight against these bullying practices.

If silence and evasion seemed convenient tactics in 2023, by 2024 it should be all too clear that backing down has become unacceptab­le. Make no mistake: These incursions, if left unchecked, will be just one step in a much bigger project to remove a system of checks and balances that enable America’s market to operate prosperous­ly and freely.

What’s at stake, quite simply, is our future. It’s time to let corporatio­ns, politician­s and money managers know: The voice of the few will not strongarm and silence the many. At the end of the day, boards remain accountabl­e to us, and the asset owners we represent. If they do not take heed, if they seek to strong-arm us or evade the writing on the wall, our votes and our money will pick sides.

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