ExxonMobil Corp. recently attracted attention by taking legal action against two climate activists who used a shareholder proposal to request company-wide reductions in greenhouse gas emissions. The proposal, sent by Arjuna Capital and Follow This, called for the regulation of emissions produced by the company and its consumers. If the proposal was implemented, it would place a strict cap on Exxon’s expansion potential and, in turn, its ability to yield returns for its investors. More
After facing the prospect of a court judgment on the legality of their proposal, the climate activists decided to withdraw their proposal. This action likely reveals their recognition that their proposal violated the Securities and Exchange Commission (SEC)’s regulations surrounding shareholder proposals. Further details here.
The SEC’s responsibility is to filter illegitimate, non-relevant or inappropriate proposals. These measures were installed to prevent the use of shareholder proposals for cheap publicity stunts that potentially harm companies’ productivity and bottom line. Yet, aggressive reinterpretation of the SEC rules in recent years has led to a surge of politically charged proposals, undermining the very essence of these pre-installed filters. Further reading.
Perhaps the most concerning shift is the proposal from the SEC leadership to further relax these filters, making it even easier for political activists to recycle rejected proposals just by slightly altering their phrasing each year. Details can be read here.
The recent lawsuit filed by Exxon against Arjuna Capital and Follow This may play a crucial role in the realm of shareholder proposals moving forward. By affirming Exxon’s position, the court has the power to steer the commission to enforce their rules properly, restoring some rationality to the shareholder proposal process. Lawsuit details.
The SEC was originally established with a clear mandate: to safeguard the interests of investors. However, the recent shift in its focus towards facilitating political dialogue has shifted it from its primary role. The Exxon lawsuit provides an opportunity to realign the SEC’s priorities. However, it remains to be seen how this case will affect the SEC’s reputation in the long run.
Note that the views expressed in this article are personal and do not necessarily reflect the opinions of Mayer Brown, Lawrence Cunningham, George Washington University or Bloomberg Industry Group, Inc. Full source.