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Exxon: a rebellion investors should back

The Texas headquarters of ExxonMobil and AT&T are less than 20 miles apart. The similarities do not end there. Both are American titans, but have fallen on hard times in recent years. Each faces a reckoning from restive shareholders. AT&T last week walked away from its foray into entertainment to focus on telecoms. Such strategic clarity will be trickier at Exxon.

A proxy fight culminates next week at what was once the most valuable company in America. The showdown is not just about operational focus or corporate governance but the future of hydrocarbons. Shareholders are frustrated over a share price fall of 47 per cent between 2015 and 2020. Exxon’s strong focus on fossil fuel extraction has become increasingly untenable.

A start-up activist fund, Engine No 1, has been raising hell at Exxon with proposals for new directors. Its thesis is that a feckless Exxon board has failed to reimagine the company as the world begins to transition away from oil and gas drilling. Large investors have also started asking tough questions about companies that are at odds with sustainability.

As recently as March 2020, Exxon was arguing that investing more than $30bn annually in capital expenditures was sensible, as global energy demand would require even dirty sources of power. That investment was enough that annual operating cash flow less capex was under $10bn even as Exxon’s dividend required $15bn. 

Earlier this year, the company pivoted, revising its capital spending forecast downwards to as little as half previous figures. Exxon shares have jumped 43 per cent in 2021. Oil prices have rallied and suddenly austerity looks like a sensible strategy. The possibility of an activist upheaval is a further factor.

For its part, Exxon has highlighted its commitment to “carbon capture” technology. Like many of Exxon’s arguments, Engine No 1 dismisses that as window dressing. The likes of BlackRock and Vanguard will decide this fight. They have commitments to sustainability to stick to. Fresh voices are needed in Exxon’s boardroom. Shareholders should back the rebel motion.

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Exxon: a rebellion investors should back

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