In what appears to be a response to activist investment fund Engine No. 1 convincing Exxon/Mobil shareholders to elect three of its four “pro-climate change” alternative slate candidates to the board of directors last year, the National Legal and Policy Center (NLPC), a conservative watchdog, is recommending its own candidate to run for election to the Exxon/Mobil board in 2023. The NLPC owns shares of Exxon and a number of other companies. This may be the start of a trend to counter increasing pressure on companies to implement strategies that move away from fossil fuel consumption or focus on ESG.
The NLPC has recommended that North Carolina Judge Don van der Vaart, who is also the former secretary of the state’s Department of Environmental Quality, be placed on the Exxon/Mobil proxy card with the endorsement of Exxon’s board of directors. Since most shareholders vote for the slate of directors that is recommended by the board, it will be interesting to see if the Exxon board agrees to place van der Vaart on the proxy card, and if so, how the vote turns out. Some consider Judge van der Vaart to be “anti-ESG” and in a Fox News Digital report, he argued that “ESG strategies deviate from [a director’s] purely fiduciary responsibilities” and “are often overly simplistic in their understanding of the science.” Since different views can often help to make a board better, governance observers and the energy industry will be watching to see what the Exxon board does.
The possibility of shareholders running a wave of “anti-ESG” candidates for board seats brings added complexity to the corporate director position. It may encourage boards to consider doing the following:
• Hold internal meeting to improve each director’s understanding of ESG strategy. The environmental, social and the governance portions of ESG are extremely complex and to expect each director to fully grasp all aspects of each area is probably an unfair expectation. It might be good for directors to share as much information as possible about ESG strategy with each other so that the entire board is working with the same information as management determines what are the best strategies to move forward with. Consultants might be helpful in this process.
• Create separate business strategies for Environmental, Social issues and Governance. Trying to view ESG as one thing may be the wrong approach. Many governance experts are suggesting that the “E”, “S” and “G” should be delt with separately because they can require different strategies for different companies and industries. There is no one-size-fits-all climate change strategy. Social issues that companies deal with will differ based on the communities that they serve. Any number of factors require the governance structure at each company to be different as well. Create these separate strategies and then find ways to make them align with the goals of maximizing profitability. It can be done.
• Resist using “conservative” versus “progressive” labels in ESG discussions. Strategies should be accepted or rejected on their merits, not because of someone’s politics. A company can choose a business strategy that embraces conservative values if it is in the best interest of the shareholders and customers who support those values – and the opposite is true. Focus on outcomes not politics. The SEC has proposed disclosure of climate change strategy, so progressive and conservative labels don’t matter.