By Jennifer Hiller and Svea Herbst-Bayliss
(Reuters) -Exxon’s business strategy hung in the balance on Wednesday as it took the uncommon step of recessing its shareholder meeting as it scrambled to stave off a challenge from investors aiming to reshape its board to better align the oil giant with global moves to combat climate change.
A dissident shareholder group led by tiny fund Engine No. 1 sought to replace as many as a third of Exxon Mobil Corp’s 12-member board of directors at the shareholder meeting, the first major boardroom contest at an oil major that makes climate change the central issue.
In an unusual move, at about 11:15 a.m. EDT (1515 GMT) Exxon adjourned the meeting for one hour as it continued to count votes, which critics called a delay tactic.
Engine No. 1 blasted Exxon in a statement, accusing it of delaying the vote-counting to avoid an embarrassing loss in the proxy battle using its “corporate machinery.”
“Shareholders should not be fooled by ExxonMobil’s last-ditch attempt to stave off much-needed board change in response to significant shareholder pressure and the prospect of losing a proxy contest,” Engine No. 1 said in a statement. “ExxonMobil should accept the result, take the vote and move forward.”
“Companies often do this when they see they don’t have the votes for something, they’ll adjourn and see if they can get the votes to come in,” said Francis Byrd, an independent corporate governance consultant.
Exxon has lagged other oil majors in its response to climate change concerns, forecasting many more years of oil and gas demand growth and doubling down on investments to boost its output – in contrast to global rivals that have scaled back fossil fuel investments.
Investors led by Engine No. 1 have said the world is changing quickly as governments and companies move to reduce the emissions from fossil fuels that are warming the planet, and that Exxon Chief Executive Darren Woods needs to make big changes to ensure the company’s future value to investors.
Engine No. 1, which has put up a slate of four nominees, has successfully rallied support from institutional investors and shareholder advisory firms upset with Irving, Texas-based Exxon for its weak financial performance in recent years. It has just a $50 million stake in Exxon, which carries a market value of nearly $250 billion.
Preliminary vote results are expected by midday. Results will show if there is broad support among energy investors for a transition to cleaner fuels necessary to limit worldwide temperature increases.
Charles Elson, professor of corporate governance at the University of Delaware, said meeting suspensions are allowed and it shows the vote is close. “It has happened before. Is it a regular in an annual meeting? No,” Elson said.
BlackRock Inc, Exxon’s second-largest shareholder, joined the dissidents, as it will support three of Engine No. 1’s nominees, Reuters reported on Tuesday.
Exxon has fought to keep climate activists at bay, spending tens of millions of dollars on a high-profile PR campaign, agreeing to publish more details of its emissions and coming out in support of carbon reduction. Activists have said it is too little, too late, and that Exxon needs a less reactive strategy.
‘BROAD CHANGE’
“This proxy fight reflects this broad change in how our political leaders, our business leaders and our fellow shareholders are stepping up and taking these immense risks seriously,” New York State Comptroller Thomas DiNapoli said.
The state’s pension fund in April said it backed Engine No. 1’s slate.
“My bet is activists win a couple of seats and it is short-term negative ExxonMobil,” independent oil analyst Paul Sankey said in a Wednesday note.
On Monday, Exxon said it would add two new directors to its board, one with climate industry experience, in an attempt to win enough institutional support.
Exxon added three new directors to its board earlier in the year as the pressure from Engine No. 1 and hedge fund D.E. Shaw, which voiced similar complaints, mounted. D.E. Shaw kept its dealings with Exxon largely out of the limelight.
“We have one of the strongest boards in corporate America,” Woods said in an interview last week.
Exxon’s board understands the company’s complexity and supports a path toward carbon reductions in the Paris accord, Woods said, referring to the international agreement aimed at combating climate change.
Exxon shares were up 0.3% in Wednesday trading. The stock has lagged its peers over the last five years.
There will be no need for new oil and gas projects if investors want net-zero carbon emissions by 2050, the International Energy Agency said this month.
Wednesday’s vote “is a good example of activist stewardship to help the company get the board it needs for the energy transition,” said Robert Eccles, a professor at Saïd Business School at the University of Oxford.
(Reporting by Jennifer Hiller in Houston and Svea Herbst-Bayliss in Boston; editing by Gary McWilliams, Will Dunham, Michael Perry and Emelia Sithole-Matarise)
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