The Big Vote at Chevron, Exxon, and Shell, plus a big AGM roundup
PROXY COUNTDOWN SCRIPT
<THEME MUSIC>
This is Proxy Countdown. Welcome to the big show for the week of May 13, 2024 alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:
A new director at Exxon that shareholders can not vote on
Shareholders at Tesla are being threatened to support its CEO
Exxon’s thoughts on shareholder democracy
A non-sugar sweetener shareholder proposal at Pepsi and a non-human primate proposal at Charles River Laboratories
And on the big Vote, we look at the Dirty 3: Chevron, Exxon, and Shell
<TRADE WIRE BUMPER>
Trade Wire - BUY/SELL
Top Stories:
At WEC Energy Group, Gale Klappa has transitioned from Executive Chair to Non-Executive Chair.
According to the filing, “In light of the Company’s performance during Mr. Klappa’s tenure as Executive Chairman and his significant contributions to that performance, the Compensation Committee approved the acceleration of the vesting of unvested shares to Mr. Klappa.”
This may be the official green light to attach all company performance to board, positive or negative.
Also, Mr. Klappa will be entitled to an annual retainer fee of $120,000 and equity valued at $160,000. On top of that, according to the company, “In recognition of his service as Non-Executive Chairman of the Board, and the additional duties that entails, the Committee determined Mr. Klappa will receive an additional annual retainer fee of $187,500”
So WEC Energy Group clearing making stuff up as they go along
As part of AbbVie’s leadership transition where Robert Michael will become the new CEO and former CEO Richard Gonzalez will become Executive Chair, the company announced that the former CEO and new Executive Chair’s base salary will be $1,500,000 and that he will continue to be eligible to participate in AbbVie’s bonus plan with a target bonus equal to 140% of his base salary.
So, to be clear, the chair of the group tasked to provide oversight of Abbvie management will be the second highest paid employee at the company, making even more than the COO.
After Exxon Mobil’s merger with Pioneer Natural Resources, Maria Dreyfus was added to the board. According to the filing:
“Ms. Dreyfus will not be included with the Company’s nominees for election by shareholders at the Company’s annual meeting of shareholders on May 29, 2024, but will be reappointed by the Company’s Board of Directors immediately thereafter for a full term.”
Also at Exxon Mobil, due to an FTC consent order in connection with the Merger, the former CEO of Pioneer Natural Resources, Scott Sheffield, is restricted from joining the Exxon board.
And lastly, at Aspen Technology board chair Jill Smith resigned last week and was replaced by Robert Whelan, Jr. This means that there is currently only one woman on the board of Aspen Technology: Karen Golz with 2% influence.
<PROXY CAGE MATCH BUMPER>
PROXY CAGE MATCH
Tesla—which never buy ads—is buying ads to promote Elon Musk’s record $52 billion pay deal before the company’s annual meeting
Multiple filings refer to 1,100% TSR since Elon’s award was granted in March 2018. The footnote unfortunately cuts off the math at the end of 2023 when the share price was $248 and not at today’s $174.
And how about this actual filing to shareholders that posts a portion of a recent earnings call:
Question to Elon: The thesis hinges completely on AI, the future of AI, full self-driving, neural net training, all of these things. In that context, Elon, you've spoken about your desire to obtain 25% voting control of the company, and I understand completely why that would be. So I'm not necessarily asking about that. I'm asking if you've come up with any mechanism by which you can ensure that you'll obtain that level of voting control, because if not, then the core part of the thesis could potentially be at risk. So any additional commentary you might have on that topic?
Answer by Elon Musk: Well, I think no matter what Tesla, you know, even if I got kidnapped by aliens tomorrow, Tesla will solve autonomy, maybe a little slower, but it would solve autonomy for vehicles at least. I don't know if it would win on, with respect to Optimus or with respect to future products. But it would, but there's enough momentum for Tesla to solve autonomy even if I disappeared, for vehicles. Now there's a whole range of things we can do in the future beyond that; I'd be more reticent with respect to Optimus. You know, if we have a super sentient humanoid robot that can follow you indoors, and that you can't escape, you know, we're talking terminator level risk, then I'd be uncomfortable with, you know, if there's not some meaningful level of influence over how that is deployed. And if there's, you know, shareholders have an opportunity to ratify or re ratify, the compensation. I guess I can't say that, but that is a fact. They have an opportunity.
And finally, Exxon is fighting back against Glass Lewis. The company filed its letter to Glass Lewis to respond to the proxy advisor’s decision to vote against Exxon Lead Director Joseph Hooley. In the letter, Exxon asks Glass Lewis to recuse itself from all opinions on Exxon due to conflicts of interest involving other shareholder groups.
One of the letter’s key takeaways is this quote: “For shareholder democracy to be real, a ‘no’ needs to mean ‘no.’”
Exxon may have unwittingly opened the door for all proposals at American companies to be become fully binding: a no means no and a yes means yes.
<VOTE RESULTS BUMPER>
VOTE RESULTS TABLE
Moving over to our vote results table, AGM season is in full swing:
I looked at 90 AGMs from May 3-15. Of those, I took notes on only one-third (30) of meeting results, which means the others were so management-friendly that I couldn’t muster even a single comment. This includes such massive and well-known companies as: Occidental Petroleum, MGM Resorts, General Electric, Loews, and Philip Morris. At Exelon, in fact, average directors support was 99%.
The vast majority of directors received well over 90% support. Only 9 directors (out of roughly 900) received more than 20% votes withheld:
David Trujillo 44% NO
Failed attendance
Barry Diller 23% NO
Thomas S. Gayner 39% NO
Mary Hogan Preusse 23% NO
Andrew Liveris 22% NO
Robert M. Dutkowsky 28% NO
Micheline Chau 31% NO
Lewis Kramer 30% NO
But the real winners is a man named John Zillmer:
There was wide support for pay practices as well, despite growing media coverage over excessively high CEO-to-worker pay ratios and massive pay packages during a period of the American economy known as stagflation or greedflation. Only 3 companies showed considerable dissent:
Say on Pay 35% NO
Say on Pay 32% NO
Say on Pay barely passed 50.4%
Pay committee chair Hadi Partovi 94% YES
In other Management Proposals:
shareholders approved an amendment of Pultegroup’s Articles of Incorporation to eliminate the 69.3% supermajority voting requirements
The proposal to amend the Articles to eliminate supermajority voting provisions did not receive the required vote of 80% of outstanding shares (86%) at Eli Lilly
And at Ecolab, an auditor, PricewaterhouseCoopers, actually received more 12% votes against their ratification.
Total audit fees increased from $15M in 2022 to $23M in 2023
Moving over to the world of Shareholder proposals.
There’s ongoing success for simple majority voting. Passing at both
Nearly passing at:
AbbVie with 49% saying Yes
The only real outlier was:
Molina Healthcare, where only 9% supported the proposal.
Five 5%-institutional shareholders combine for 43% voting power but this doesn’t entirely explain what happened at Molina
Beyond simple majority voting:
Near shareholder proposal misses include:
A Report on Effectiveness of DEI Efforts at Expeditors International of Washington
This proposal was from As You Sow and received 35% support
And at Steel Dynamics, a proposal to call a special meeting fell just short at 41%
Three of my favorite sounding SHPs all failed:
At Kraft Heinz: a SHP Report on Group-Housed Pork
At Pepsico: a third-party assessment on non-sugar sweetener risks
And at Charles River Laboratories: a report on non-human primates imported by the Company
And finally, in my “you are all governance heroes to me” category:
A SHP to reduce the voting power of UPS class A stock from 10 votes per share to one vote per share received 36% yes votes. (John Chevedden)
At United Rentals, shareholders wanted Directors to be Elected by Majority Vote. Somehow only 15% said yes (undisclosed)
At Ford Motor Company, a one vote one share proposal received an impressive 38% support, despite the Ford family’s 40% voting power (John Chevedden)
“This proposal topic has received more than 51% of the independent vote of the non-family Ford stock in each year since 2011”
A SHP requesting a railroad safety committee at CSX received only 8% YES votes. (AFL-CIO)
And finally, my favorite, at Gilead Sciences, a SHP requesting that the Board include one member from the Company’s non-management employees received only 6% support. Shame on you, Gilead Sciences investors. (Jing Zhao)
<THE BIG VOTE BUMPER>
THE BIG VOTE
MATT:
Need to agree up front on some rules before we cover Oil and Gas, and the Big Three in particular:
Directors are guardrails - this is not alpha generation, it is asset protection
Directors are hired for long-term asset protection
Climate change is the most fundamental long-term risk facing this (and arguably all) sectors
Need to agree on the sector’s CURRENT revenue model:
OG sells energy conversion - from liquids and solids pulled out of the ground, transformed into motion/fire, physical product, and pollutive byproducts.
We need to roughly agree on the sector’s current size and imprint:
Global economy:
Direct sales of OG is roughly 4% of global economy
Second order economy - plastics, glue, paint, etc - is orders of magnitude larger
Investor economy:
Global OG stocks up 16.7% in the last year, up 11.6% in last 3 years, up 3.2% in last 5, down 1.8% last 10
Deloitte surveyed investors and found 75% of them expect a 3+% dividend payout for the sector
Cash flow is important pressure point for executives to deliver short term dividends in lieu of long term pivot/transition
The demographics:
The public IOG sector has 289 active directors, of which 186 active directors that aren’t executives, family, government, employee, or otherwise insiders on their boards
They are relatively young - average age of 62
35% independents are female, 65% male - more than average
Only 10% of them have been on their boards for more than 10 years
Includes THREE directors on Chevron board, but we’ll get to that
This is a MATURE sector - smart director rotation, highly connected individuals, professional boards at mostly widely held companies with monarch CEOs
The average independent director sits on 1.7 boards - basically they all are multi boarders
The performance of the people:
47 of independent directors are unrated - too few years
60 have above average carbon intensity performance, 46 are below average
TSR performance is subpar overall - full sector average is .436, and only Shell’s board bats above .500 (.533) of the big three
The Big Question:
Are the people who are on OG boards the shepherds of a new future - will they act as guardrails for the long-term viability of the sector in the face of climate change.
The directors of the next ten years will need to:
Offer engineering and innovation strategies to reinvent the business model - revert the business model from legacy/mature to startup
Focus on maximizing efficiency NOW during the transition to startup mode for legacy business
Hold management accountable for the transition
So let’s start the recommendations using three data sets:
Influence - do investors with an interest in the NEXT decade have enough influence in the board room, or is it largely executive influence?
Knowledge - do the directors representing investor have the knowledge/skill base to transition from legacy asset to future asset?
Performance - do the directors have an existing track record of performance on both shareholder returns AND carbon and broader controversies?
INFLUENCE
BP, Chevron, Equinor, Exxon, Oxy, Petro Brasil, Saudi Arabian Oil Co, Shell, Suncor, TotalEnergies - 10 of the 24 IOG companies’ have a majority of top influencers that are independent directors
Meaning - these are controllable via proxy vote where proxy is available
Big Three are among the most “democratic”, with 50% of board influence held by the top 1/3rd of the board
These are top targets - create influence voids to fill with knowledge and performance leaders… which gets us to what performance/skill gaps are there
We’ll focus on the Big Three for targets now using this as our baseline
KNOWLEDGE
We are now rolling out knowledge maps for every board. These are based on:
Industry exposure of the director - where have they worked, and what are the most common skills that appear in those industries?
Past titles/roles - what knowledge or skills are associated with particular titles and positions?
Education - where we know it, what degree focus did a director have, and what are common sets of knowledge associated with that degree?
We’ve mapped 30 or so databases of government and industry surveys to director and executive bios and work histories to model some baseline management knowledge of each director - what rough skills/knowledge would you expect for each director?
As an example - a director who was the CFO of an airplane manufacturer with a degree in Economics would map as having deep economic knowledge and a working knowledge of mechanical processes and production, but not necessarily engineering.
Second example - a director who was a media executive currently working at a consulting firm with a degree in marketing would map as having fine art management skills, sales and marketing knowledge, and secondary knowledge of communications and possibly psychology.
We estimate based on director experiences a “knowledge stack” and then weight it by influence on the board, so we can see which particular knowledge sets may have the most influence in the boardroom setting.
Let’s use Exxon as a first example:
Things to notice:
The majority of mechanical skills - the core skills to the mining and energy sectors - are held by insiders, NOT the board
We saw the same thing at Disney - the media executive influence in the boardroom was almost entirely Bob Iger, which is a form of power consolidation
The non-executive board members offer economics (finance, PE/VC), electronics (ie, aerospace), and law (administrative and law)
In fact, Exxon is the MOST legal/compliance focused of the big three, which could explain their confrontational/lawsuit driven nature
We mapped the ENTIRE IOG industry - this is the “person beta” that will act as a “team” to transition the economy off oil and onto future energy technologies.
IOG INDUSTRY
Exxon is basically a microcosm - the same pattern exists throughout the industry, the only difference being Exxon’s heavy knowledge of law which is not industry norm
Executives largely control the core mechanical knowledge set
Investor representatives are economics/finance focused, which is generally a short-term focus
Engineering is third on the list of dominant knowledge influence
Innovative companies have much more engineering and computers, less process and mechanical - engineers build things, managing a mechanical build is more process than building
Take a company like Vertex Pharmaceuticals, the first to use CRISPR in the market - heavy engineering, computers, medical, biology, psychology knowledge influence:
What’s the takeaway?
These aren’t the right shepherds for what we need in most cases - the next five years is about “team rebuilding” like an aging ex-championship basketball team.
THIS YEAR:
Focus on independent directors who underperform on key issues (carbon, TSR) with high influence today and duplicative knowledge base - the old guard
Focus on executives on the board that are resisting change
Replace with more independence, younger, tech focused, engineers
NEXT 2-3 YEARS:
Focus on knowledge/skills mix - does not mean “climate skill”, it means innovation, open-mindedness, willingness to dissent
Break up highly insular, highly interconnected boards
Replace with “new guard” of finance that models and understands exogenous risks to the sector, AI experts, physics, more engineering
NEXT 4-5 YEARS:
At this point ~50% of boards should have been replaced - focus on outliers, bring in much broader diversity of thought (ie, 6 of the 12 Exxon board members are from or live in Texas, where Exxon is based, and politically the company is nearly 100% conservative PAC oriented)
Chevron
AGM Date: May 31, 2024
Documents
General Observations
Ownership
Vanguard: 8.6%
BlackRock: 7%
Berkshire Hathaway/Warren Buffett 6.7%
State Street 6.6%
Performance outliers:
Overall: .414
EBITDA .565
TSR .466
Carbon .519
Controversies .149
Board stuff
Nominated Directors
Wanda M. Austin LD N 14%
John B. Frank
Alice P. Gast
Enrique Hernandez, Jr. 12% (2008-)
Marilyn A. Hewson
Jon M. Huntsman Jr.
Charles W. Moorman C 11%
Dambisa F. Moyo
Debra Reed-Klages A
D. James Umpleby III
Cynthia J. Warner
Michael K. Wirth CEO/Chair 18%
All directors over 92% support
Skills
Only one of the big three with engineering as the core knowledge set
Gast is a chemical engineer in fluid dynamics who spent the better part of 15 years promoting investment in climate change, focus of multiple academic positions, including Imperial College
Austin is another academic, Aerospace exec, math and systems engineering background, Obama pick for science council - no direct focus on climate, but deep history on innovation and science
Warner in renewables, but came from oil with focus on “renewable” fuels (biodiesel)
The rest of the board is utter crony shit, to be blunt
122 loops, including 42 with current directors
Ex NSC CEO on board? Seriously?
Deep Ron Sugar fingerprints - Lockheed, Duke Energy, McD, Wells Fargo, Caterpillar, Uber, Amgen, 3M, all represented in the loops
Diversity Gaps
Female Power Gap %/-9%
Industry average female influence = %
Diversity Power Gap %/%
Industry average diversity influence = %
Any diversity %/%
Insider influence: %
Industry average %
Board turnover
Say on Pay
94% YES 2023
$24M
SHPs
2024
Report on Tax Practices
Commission a Third-Party Report on Human Rights Practices
Report on Plastic Demand Scenario
Report on Voluntary Carbon Reduction Risks
2023
rescind the 2021 "reduce scope 3 emissions" stockholder proposal/Steven Milloy/1%
set a medium-term Scope 3 GHG emissions reduction target/undisclosed/9%
recalculate emissions baseline to exclude emissions from material divestitures/As You Sow/18%
establish a board committee on decarbonization risk/Bahnsen Family Trust/2%
report on worker and community impact from facility closures and energy transitions/United Steelworkers/17%
report on racial equity audit/American Baptist Home Mission Society/10%
report on tax practices /Oxfam America/15%
adopting a policy for an independent chair/Newground Social Investment/20%
VOTE RECOMMENDATION
AGAINST Wick Moorman
Ex CEO of the clearly problematic Norfolk Southern and the godfather of poor safety performance there - 11 year tenure, mediocre performer, 11% influence, oldest on the board, pay chair and nom committee
Do we want more of the Wick Moorman network?
AGAINST Rick Hernandez
The board needs a Ron Sugar cleanse - there are so many loops and connections, it’s hard to choose where to start, so start with the longest tenured who’s background is in home security with board seats on some of the worst, most obfuscating companies in the history of the US
If the NLPC “Kellner stinks at Boeing” logic holds, then how about Wells Fargo’s ex-chair from the accounts scandal, McDonald’s board during the Easterbrook clawback, Macerich board as they default on properties - and he has a law degree?
FUTURE VOTES - this is hard to choose, but:
Debra Reed-Klages (also ex Boeing)
Marillyn Hewson
Exxon Mobil
AGM Date: May 29, 2024
Documents
General Observations
Ownership
Vanguard: 9.7%
BlackRock: 6.9%
State Street 5.4%
Performance outliers:
Overall: .453
Darren Woods .316
EBITDA .378
Steven A. Kandarian .213
TSR .482
Jeffrey Williams Ubben .327
Carbon .535
Jeffrey Williams Ubben .190
Controversies .402
Darren Woods .000
Board stuff
Nominated Directors
Michael J. Angelakis
Angela F. Braly C 9%
Gregory J. Goff A
John D. Harris II
Kaisa H. Hietala
Joseph L. Hooley LD N 12%
Steven A. Kandarian
Alexander A. Karsner
Lawrence W. Kellner
Dina Powell McCormick
Jeffrey W. Ubben
Darren W. Woods CEO/Chair 20%
MATT:
Illinois Treasurer announced they’re voting against CEO Woods and LID Hooley as a result of Arjuna lawsuit
NLPC files its own piece asking shareholders to vote against Kellner on Exxon… because he’s so bad at Boeing!
125 loops, 12 loops for current directors
Angela Braly, Lawrence Kellner, Mike Angelakis the most connected
All tenure under 10
All directors over 90%
Skills
Diversity Gaps
Female Power Gap %/%-10%
Industry average female influence = %
Diversity Power Gap %/%
Industry average diversity influence = %
Any diversity %/%
Insider influence: %
Industry average %
Board turnover
Say on Pay
10.2% NO in 2023
36$M
SHPs
2024
Revisit Executive Pay Incentives for GHG Emission Reductions/National Legal and Policy Center
Additional Pay Report on Gender and Racial Basis/Broz Family Investments
Report on Plastic Production Under SCS Scenario/United Church Funds
Additional Social Impact Report/United Steelworkers, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union
2023
Establish a New Board Committee on Decarbonization Risk/Bahnsen Family Trust/2%
Reduce Executive Stock Holding Period/Kenneth Steiner/2%
Additional Carbon Capture and Storage and Emissions Report/Steve Milloy/5%
Additional Direct Methane Measurement/Sisters of St. Francis Charitable Trust/36%
Establish a Scope 3 Target and Reduce Hydrocarbon Sales/Anthony Fokkerweg 61/10%
Additional Report on Worst-case Spill and Response Plans/Mercy Investment Services/13%
GHG Reporting on Adjusted Basis/Andrew Behar/17%
Report on Asset Retirement Obligations Under IEA NZE Scenario/Legal & General Investment Management America/16%
Report on Plastics Under SCS Scenario/Meyer Memorial Trust/24%
Litigation Disclosure Beyond Legal and Accounting Requirements/Anna Marie Lyles/9%
Tax Reporting Beyond Legal Requirements/Oxfam America/14%
Energy Transition Social Impact Report/United Steelworkers/15%
MATT: “Real investors” vs. “activists” who “hijack” to advance an ideology inconsistent with the well being of the company. They want us to shut down, we take issue with the SEC allowing the abuse
Different from Engine No 1 wanted to make a name for itself, it didn’t have a specific agenda other than bringing new directors - those directors came in to make the company as successful as possible. They approved our plan 100% after we briefed them.
Woods admits the board can strengthen the path Exxon is on
“The dirty secret is how much all this will cost and who will pay for it” - make the customers pay is his solution
VOTE RECOMMENDATION:
AGAINST Jay Hooley
Independent, knowledge mapped to economic/finance, worst carbon performer, on another board so he won’t be homeless, also below average TSR
AGAINST Darren Woods
Assisted by the board, which needs a revamp entirely as Engine No 1 was a marketing exercise - as Woods states himself - Woods is obvious in his disdain of his “fake” shareholders and outright antagonistic to anyone who disagrees with him.
He claims that he’s focused on “now” and the misinformation campaigns are “old news” - he’s been at Exxon since 1992, he’s an Exxon lifer - change doesn’t come from corporate lifers
On principle, Woods and Hooley (who was an investor) should not sue investors who withdraw a proposal you don’t like - the rules are the rules, no matter what you think.
AGAINST Larry Kellner
For once I agree with NLPC - he’s a terrible performer, here and elsewhere - worst controversies performance, his legacy is overseeing a failing airline parlayed into a failing airline manufacturer board chair and Exxon
Knowledge in economics is entirely duplicative
FUTURE TARGETS
Mike Angelakis
Gregg Goff
Shell PLC
AGM Date: May 21, 2024
Documents
General Observations
Ownership
Vanguard: 9.1%
BlackRock: 6.8%
Performance outliers:
Overall: .376
EBITDA .490
Catherine Jeanne Hughes .272
TSR .505
Dick Boer .217
Carbon .524
Jane H. Lute .105
Controversies .195
Cyrus Taraporevala .838
Board stuff
Nominated Directors
Dick Boer LD 17%
Neil Carson C
Ann Godbehere A 14%
Sinead Gorman CFO 7%
Jane Holl Lute
Catherine Hughes
Sir Andrew Mackenzie Chair N 13%
Sir Charles Roxburgh
Wael Sawan CEO 16%
Abraham (Bram) Schot
Leena Srivastava
Cyrus Taraporevala
All directors over 92%
7 above 99%
Skills
Diversity Gaps
Female Power Gap %/-5%
Industry average female influence = %
Diversity Power Gap %/%
Industry average diversity influence = %
Any diversity %/%
Insider influence: %
Industry average %
Board turnover
Say on Pay
Binding/2023/94%
$10M in 2023 (9.873)
Proposals
Management
Shell’s Energy Transition Strategy 2024 resolution (Resolution 22)
77% YES in 2023
SHPs
2024
to align its medium-term emissions reduction targets covering the greenhouse gas (GHG) emissions of the use of its energy products (Scope 3) with the goal of the Paris Climate Agreement: to limit global warming to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C.
2023
19% YES
Matt notes:
The Board is grateful for the time and contribution of all those stakeholders who provided feedback and for the overall indications of support for Shell’s strategy
This is the clear winner overall of the big three on most of the immediate issues facing them
Investor represented engineering, technology knowledge
Strongest carbon intensity performance as a group
Lowest interconnectivity of the big three, but a history of connectivity they’re shedding
VOTE RECOMMENDATION
AGAINST Ann Godbehere
14% influence, longest tenured, mediocre performer, knowledge base is heavy economic - accountant and banking background - plus exposure to some not so stellar boards in British Tobacco and Stellantis, most connected director to current board
FUTURE VOTES
Bram Schot - there’s no room in the future for marketing/sales expertise
DAMION:
That’s the Proxy Countdown for the week of April 29, 2024. Join us next week when we jump back into the Alternative Democracy pool... forever on the lookout for shareholder sharks, floating bandaids, and wayward directors.
<OUTRO THEME>
