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Vanguard Investment
Stewardship Insights
Voting insights: A proxy contest and shareholder
proposals related to material risk oversight at ExxonMobil
May 2021
Vanguard publishes Investment Stewardship Insights to promote good governance practices and to
provide investors and public companies with our perspectives on important governance topics and
issues that come up for shareholder votes.
• the quality of company and dissident nominees, and
Company: ExxonMobil Corporation (Exxon)
Meeting date: May 26, 2021
• the quality of company governance.
Proposals: Items 1.1 through 1.12—Director Elections, Item 4—
In addition to constructing a well-composed board, the company
Require Independent Board Chair; Item 6—Issue Audited Report
on Financial Impacts of IEA’s Net Zero 2050 Scenario; Item 8— should maintain a leadership structure and culture that enables
Report on Political Contributions; Item 9—Report on Lobbying the board to apply independent oversight of strategy and material
Payment and Policy; Item 10—Report on Corporate Climate risks and allows board members to appropriately challenge the
Lobbying Aligned with Paris Agreement management team. On behalf of the Vanguard funds, our
Investment Stewardship team considers proposals requiring an
independent chair case by case and is not prescriptive about
How the funds voted which leadership structure best enables independent oversight.
At the annual meeting for ExxonMobil, a U.S.
integrated oil and gas company, the Vanguard funds Vanguard expects portfolio companies and their boards to
voted on the dissident proxy card and supported be competent about material risks. With climate change, this
two dissident director nominees to join Exxon’s board. The funds includes an expectation of appropriate risk oversight, mitigation
also supported two shareholder proposals related to lobbying. strategies and practices, and effective disclosure to the market
The funds did not support the remaining shareholder proposals, of how the board oversees climate-related strategy and risk
including one requiring an independent board chair, another management. A highly engaged board will ensure that climate-
seeking an audited scenario analysis, and one requesting more related risks and opportunities are included in both short- and
detail on Exxon’s political contributions. long-term planning.
Vanguard also believes that poor governance of corporate
Vanguard’s principles and policies political activity, including lobbying, can manifest into financial,
Good governance starts with a company’s board of directors, legal, and reputational risks that can affect long-term value for
and an effective board should be both independent and diverse Vanguard funds. This is particularly true if there is a misalignment
in terms of personal characteristics, skills, experience, and between corporate political activity and a company’s stated
opinions. Company boards that are appropriately capable, diverse, strategy, or lack of disclosure about the activity.
and experienced are equipped to make better decisions, and
good results are more likely to follow. Analysis and voting rationale
We carefully evaluate these board composition factors, among Proxy contest
other considerations, as we analyze proxy contests. Our overall Vanguard’s Investment Stewardship team conducted nearly
analysis focuses on a dozen engagements with members of Exxon’s board and
leadership team over the last year, with numerous discussions
• the case for change at the target company, in the weeks ahead of the annual meeting. This follows roughly
For institutional and sophisticated investors only. Not for public distribution.a decade of engagement with Exxon on topics related to the Through our direct engagement with the lead independent
board’s composition, independence, and responsiveness to director and other Exxon board members, we gained insight into
shareholder feedback. For several years, we have also annually recent progress the company has made and the future steps it
discussed with members of Exxon’s executive team the is committed to taking regarding board composition. We were
oversight of climate risks and the strategy for mitigating them. encouraged by recent signs of increased board independence
Beyond that, ahead of Exxon’s annual meeting, we engaged and positive steps regarding new board members’ applicable
multiple times with other shareholders and stakeholders to skills and diverse backgrounds.
understand their perspectives, including with the proponent
of the dissident slate, the hedge fund Engine No. 1. We also Exxon has committed publicly to a thorough search for candidates
engaged directly with each of the proposed dissident director who fill gaps on the board within the year, and we look forward
nominees to inform our analysis of their relevant skills and to reviewing the outcome of that search. At present, we believe
qualifications, as well as of the case for change at Exxon. Exxon will benefit from having enough flexibility to successfully
navigate recent additions to its board alongside conducting this
Several aspects of the dissident’s case for change aligned search following this year’s annual meeting. To that end, the
with our team’s observations at Exxon in recent years, including Vanguard funds did not support Alexander Karsner and Anders
concerns about board dynamics and company performance. Runevad on the dissident slate.
Industry analysts have raised questions about Exxon’s overall
strategy, including its approach to capital allocation amid Independent chair proposal
increasing levels of debt, which has not preserved value nor Our engagement with Exxon’s independent directors significantly
driven operational efficiencies within the enterprise. In that improved in recent months. Its lead independent director made
context, we share concerns that Exxon’s risk oversight process himself and other independent directors available for multiple
has not led to long-term value creation, with the company discussions with our Investment Stewardship team without
significantly underperforming peers and the market over all Exxon’s management present—a marked shift from engagement
relevant short- and longer-term periods. We have further practices in prior years.
observed that an increasingly pressing need exists for Exxon
to better align its climate strategy with (1) target setting in Through these engagements, we observed the benefits of
line with global peers and (2) its public policy efforts related Exxon’s recently enhanced lead independent director role.
to climate risks. We also saw improvements to Exxon’s board dynamics and the
independent perspectives that each director provides. Exxon
We believe that Exxon’s insular culture may have contributed directors gave us specific examples of changes that directly
to these areas of underperformance in the past. Over the years, resulted from the board’s independent oversight, as well
we have shared with Exxon our concerns about the lack of as examples of how the board independently challenges
energy sector expertise in its boardroom and questions about management. To address shareholder concerns about the lack
board independence. And for years, we did not witness sufficient of relevant energy and climate experience, Exxon has publicly
progress on either front. As a result, we started our analysis of committed to add, within 12 months, two new directors who
the proxy contest focused on the potential benefits of change possess those skill sets. We view this as a positive step in
to the makeup of Exxon’s board. response to shareholder feedback.
In determining the Vanguard funds’ approach to the proxy Through our discussions with the lead independent director
contest, we grounded our assessment on how any changes to and other board members, we gained greater insight into the
the board’s composition would affect its ability to oversee risk independent leadership the board is providing. We appreciate
and strategy and ultimately lead to outcomes in the best interest the benefits that a stable board leadership structure will provide
of long-term shareholders. We also considered how potential as Exxon emerges from a proxy contest and continues to
changes would position Exxon to succeed through the energy incorporate newer perspectives in the boardroom. As a result,
transition. In our assessment, two of the dissident director the Vanguard funds did not support a proposal to require an
candidates appeared well-positioned to add both conventional independent board chair at Exxon this year. The funds will
oil and gas industry and transformational energy perspectives to continue to monitor the efficacy of Exxon’s leadership structure.
Exxon’s board. We determined that these perspectives would We look forward to continued engagement with the current and
enhance the board’s overall mix of skills and experience and incoming independent directors and expect continued progress
benefit the company’s efforts to assess strategic options and toward independent oversight of material risks, strategy,
mitigate risks connected to the energy transition. For these company culture, and board dynamics.
reasons, the funds supported the nominations of Gregory Goff
and Kaisa Hietala to Exxon’s board.
For institutional and sophisticated investors only. Not for public distribution.Additional shareholder proposals What we expect from companies on these matters
The Vanguard funds did not support a shareholder proposal On behalf of the Vanguard funds, we expect boards to represent
requesting an audited report of the financial impacts of the the interests of all shareholders and to make independent
International Energy Agency (IEA)’s Net Zero 2050 Scenario. decisions about a company’s leadership, strategy, and risks to
Our research found that Exxon’s current reporting includes long-term value.
more than 70 scenarios from reputable sources, including the
IEA and the Intergovernmental Panel on Climate Change (IPCC). If a board lacks the appropriate composition to independently
The company indicated that its relevant subject matter experts oversee areas of material risk and company strategy, we expect
were reviewing the IEA’s Net Zero 2050 Roadmap that was the company to conduct a thorough search to identify qualified
released in mid-May 2021 and were considering including the directors who will bring the necessary skill set into the boardroom.
IEA’s scenario in their next Energy and Carbon Summary. Given Similarly, we expect boards to be climate competent. Particularly
the recency of the IEA’s scenario release, Exxon’s current for companies where climate change is a material risk to the
scenario analysis disclosure, and the company’s stated plans business, we expect boards to reflect the necessary skill set to
to review the scenario and roadmap, we concluded that this independently oversee a company’s risk and strategy related
shareholder proposal did not warrant the Vanguard funds’ to the energy transition, and to be effectively composed in such
support at this time. a way that independent directors can challenge management
on areas related to climate strategy and climate risk mitigation
The funds did not support a shareholder proposal calling for in both the short and longer term.
a report on political contributions. In our assessment, Exxon’s
recent enhancements to its disclosure on this topic give investors Furthermore, we expect boards to oversee corporate political
adequate insight into the company’s political contributions and activity across their enterprise and to communicate the
its board’s oversight of this risk. company’s philosophy and policies to investors. We look for
companies to disclose the oversight policies and structures in
The Vanguard funds voted in support of two shareholder place to ensure that the political activity aligns with the
proposals, one calling for a report on lobbying payments and company’s philosophy and long-term strategy.
policies and the other for a climate lobbying report aligned with
the Paris Agreement goals. Exxon has acknowledged that its
lobbying efforts present a material risk. Although the company
discloses details about its lobbying activities, its disclosure does
not clearly explain how the company’s lobbying efforts align with
its strategy and publicly stated positions. For example, Exxon’s
existing disclosures do not explain how its lobbying efforts are
tied to its publicly stated support of the Paris Agreement goals.
We believe that investors would benefit from enhanced disclosure
that clearly outlines Exxon’s lobbying activities, board oversight
of those activities, alignment of lobbying efforts with company
strategy and publicly stated positions, and risk mitigation efforts
stemming from any misalignment. In our engagements, Exxon
leaders were receptive to our feedback on these matters, and
we will continue to monitor Exxon’s progress on and disclosures
about them over the coming year.
Exxon_1663547_052021
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