ProMarket Managing Editor Andy Shi reviews the controversy behind ExxonMobil’s new voting program and how it falls into broader debates over recent developments to shareholder democracy and corporate governance.
On September 15, ExxonMobil made public its intention to introduce a new “Retail Voting Program” in a letter sent to the United States Securities and Exchange Commission. The program allows retail shareholders to opt into a standing voting instruction that permits the oil & gas giant to vote their shares based on the recommendations of the company’s board of directors at all general or special shareholder meetings in perpetuity. Retail voters can choose one of two different instructions that will commit their votes to either the board’s recommendation in all matters or all matters except those relating to contested director elections, mergers and acquisitions, and divestitures. Investors will be able to opt out of the program at any time at no cost and receive at least annual reminders from the company that they are participating in the program. Investors will also be able to override their standing instruction for any vote through the normal voting procedure.
According to ExxonMobil, retail voters hold about 40% of outstanding shares, yet only about 25% vote on them. ExxonMobil explained in its letter to the SEC that many of its retail voters would like to participate in votes on shareholder proposals, to elect members to its board of directors, and to decide on other matters put forth at special and annual shareholder meetings. However, they find the commitment to researching the proposal issues and navigating the paperwork to vote to be too time-consuming. The company claimed the program will help its retail investors exercise their voting rights.
ExxonMobil’s letter to the SEC requested that the regulator take no action against its program. ExxonMobil needed to confirm the legality of its program with the SEC because the Securities and Exchange Act of 1934 forbids proxies from receiving the authority to vote on behalf of shareholders for more than one meeting. Nevertheless, given the ability of shareholders to opt out of ExxonMobil’s program at any time and the frequency of reminders ExxonMobil promises to send shareholders regarding the existence of the program and their participation in it, the SEC granted the company its “no-action” request that same day. ExxonMobil adopted the program two days later.
Nevertheless, on September 30, two shareholder advocates with shares in ExxonMobil, As You Sow and Interfaith Center for Corporate Responsibility (ICCR), requested that the SEC rescind its approval. On October 14, the City of Hollywood Police Officers’ Retirement System, a pension fund, sued ExxonMobil and its directors for allegedly violating their fiduciary duty with the adoption of the program. Both the lawsuit and request from As You Sow and ICCR expressed concern that the program would suppress the vote of dissenting, informed shareholders.
In the letter, ExxonMobil claimed that the program’s intent is to simplify and facilitate retail investor participation in shareholder votes. Yet, for those who have watched ExxonMobil wage a multi-year war with its activist shareholders, particularly over its environmental, social, and governance (ESG) commitments, the program suggests another tactic by ExxonMobil’s management to shore up power at the expense of shareholders. This episode likewise introduces a new front in the more academic debates about shareholder democracy: how much power shareholders should command over management, including its priorities (the reduction of greenhouse gas emissions, short-term profit maximization, or otherwise) and the mechanisms that most effectively allow shareholders to express their opinions and prerogatives of ownership.
ExxonMobil vs. Dissent
For the last few years, ExxonMobil’s management has tussled with shareholder activists over the direction and values of the firm. As Brooklyn Law School professor Sarah Haan previously traced for ProMarket, in 2021, investment firm Engine No. 1 ran four candidates for ExxonMobil’s board of directors after finding the firm’s commitment to reducing its carbon footprint wanting. Previously, these elections ran largely uncontested (i.e., handpicked by ExxonMobil’s management). ExxonMobil tried to appease its investors by adding ESG investor Jeff Ubben to its board. However, by simultaneously toying with board size and the electoral process to preserve management’s priorities, it further upset investors. Three of Engine No. 1’s candidates won and replaced incumbent directors.
A more dramatic phase in the battle between ExxonMobil’s management and shareholders took place in 2024, when ExxonMobil received a handful of shareholder proposals before its annual meeting. One proposal sought to commit ExxonMobil to speeding up its sustainability efforts.
If company management disagrees with the contents of a proposal, as many do, they will generally ask the SEC for permission to exclude the proposal from the proxy statement (the document public companies send to their shareholders before meetings with the issues up for vote), arguing that they are irrelevant. Often, the SEC will grant the company permission. From November 2023 to May 1, 2024, the SEC granted companies permission to exclude a proposal about 68% of the time, according to Sanford Lewis of the Shareholders Rights Group. But in 2024, ExxonMobil took the “nuclear” option and sued the two shareholders behind the ESG proposal. The company refused to drop the lawsuit even after the shareholders promised to rescind their proposal, with one promising further never to introduce a similar proposal again. Eventually, one investor was excused and the judge overseeing the lawsuit dismissed the rest of the suit against the other shareholder.
Set within this recent history, some see ExxonMobil’s new voting program as another tactic to suppress shareholder dissent. On their podcast Shareholder Primacy, activist investor Mike Levin and Colorado Law professor Ann Lipton note that the new voting program is designed solely to shore up support for ExxonMobil’s management. Levin observes that most retail voters are apathetic: they do not vote and do not care to vote. These apathetic voters will likely not bother to opt into the program, even if, as Lipton says, most retail voters generally approve of the company’s direction. Instead, as Levin says, the program will only affect those retail investors who strongly support Exxon’s management. The program will make it easier for them to vote and no one else. Lipton points out that there is only one flavor to the voting program’s standing instruction: either opt in to back ExxonMobil’s management in perpetuity or continue to navigate paperwork to vote for alternative positions. There is no standing instruction to back ESG shareholder proposals in perpetuity, for example. Levin does not expect the program to boost shareholder voter turnout significantly, but the few percentage points that it might add could help entrench the power of ExxonMobil’s management.
The fight for shareholder democracy
The idea behind shareholder democracy is that it is the prerogative of the owners of a firm, shareholders large and small, to decide its direction. Although its conceptual salience arose in the early 1900s, scholars have argued that corporate boardrooms have been anything but democratic. In the “Shareholder Democracy Lie,” professors Sergio Alberto Gramitto Ricci, Daniel J.H. Greenwood, and Christina M. Sautter write that corporate governance is marred by a lack of strong checks and balances, protections for minority shareholder rights, and real mechanisms for shareholders to determine policy. Furthermore, share ownership is highly concentrated in the hands of institutional asset managers, who control the votes of retail index fund investors, and wealthy individuals. Critics also take aim at proxy advisers who suggest, and often effectively determine, how these votes are apportioned. Glass Lewis and Institutional Shareholder Services control 97% of the proxy advising service market.
Scholars and regulators have sought new mechanisms to empower retail investors, with much recent attention focused on those whose investments are in mutual funds. The big three asset managers of State Street, Vanguard, and BlackRock owned 25% of all voting shares in the U.S. in 2024 and were the largest shareholders for 88% of the companies in the S&P 500.
Historically, asset managers assembled small committees of employees to vote on behalf of its retail investors with minimal or no input from the latter. In 2021, BlackRock introduced pass-through voting for select funds. This gave its retail investors the opportunity to participate in votes for their index funds’ underlying firms for the first time. However, retail investors can, as of now, only participate in votes for about 40% of BlackRock’s holdings, and there are no mechanisms to protect minority votes. There are often restrictions or a lack of freedom in how investors vote, namely choosing from one of a few blanket policies designed by Glass Lewis or Institutional Shareholder Services. In theory, Haan writes in “Voting Rights in Corporate Governance: History and Political Economy,” Blackrock can allocate all votes to the majority choice. Vanguard and State Street have introduced similar voting programs with similar restrictions.
As Levin highlighted, even if asset managers delegated all voting power to its investors and these investors could vote their shares without restriction, that would not solve the problem of shareholder apathy. This is particularly true for index investors, who passively invest in funds with hundreds of underlying firms. In their paper “How To Implement Shareholder Democracy,” Oliver Hart, Helene Landemore, and Luigi Zingales, the latter who is the faculty director of the Stigler Center and ProMarket, recommend instituting investor assemblies: a lottery system akin to jury formation where a random selection of retail investors who opt into the process are chosen to determine how the asset managers should direct their votes. The design of the assemblies would create a representative arena where all voices can participate yet votes would still be distributed according to investors’ number of shares. Retail investor assemblies would better capture the diversity of investors’ views than current pass-through voting systems. It would overcome apathy by empowering a handful of investors, thus circumventing issues pervasive in any democracy in which individuals, knowing their votes are unlikely to swing the final outcome, free ride on the efforts of others to vote and sustain the democratic process.
Shareholder democratic backsliding
Early commentary on the second Trump administration has reflected uncertainty about how corporate governance and shareholder democracy will evolve over the next four years. Trump has promised a general rollback of rules and regulations, and many anticipated a friendly disposition toward company management after his election. In February, the SEC made it easier for company management to exclude shareholder proposals from the proxy vote. Perhaps the largest blow against investor choice has been the rollback of ESG. Asset managers were already jettisoning ESG index offerings in response to Republican pushback at the state level, and the SEC has made it even easier for management to dismiss ESG proposals since Trump’s reelection. On November 12, the Wall Street Journal reported that the Federal Trade Commission is investigating Glass Lewis and Institutional Shareholder Services for violating antitrust law because of how they recommend ESG positions to investors.
Ranging from the universal proxy, which only recently allowed shareholders to mix and match their votes for board directors, to executive say-on-pay and pass-through voting, the early empirical impact of these advances in shareholder democracy have often appeared small. As Levin said on his podcast, the measurable impact of ExxonMobil’s new voting program will likely also appear small.
But, as professors Colleen Honigsberg and Robert Jackson wrote for ProMarket after ExxonMobil sued its own shareholders in 2024, what is perhaps most important about the outcome of the ongoing back-and-forth between ExxonMobil’s management and shareholders is the principled commitment to shareholder rights, democratic norms, and the maintenance of dialogue, wherein all investors can participate. Echoing philosophers John Rawls and Jürgen Habermas, the success of any democracy is reflected in its institutions that enable open deliberation over constituents’ wants and values. To its critics, ExxonMobil’s recent maneuver, however inconsequential and seemingly anodyne, reflects another tactic to curtail deliberation and silence dissent. The SEC’s approval of ExxonMobil’s voting program and other recent actions similarly suggests that shareholders will not find succor from the federal government.
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Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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