After Proxy Fight, Exxon and Middle Class Investors Lose
A small activist investor group just won a proxy fight against one of the oldest and most iconic oil companies in the world. Environmentalists got a huge win. Middle-class Americans may be the biggest loser.
The investment group called Engine №1 only owns 0.02% of Exxon’s stock but successfully won one of the most expensive proxy fights ever, winning at least two seats on Exxon’s Board of Directors.
Engine’s motivation? Pushing Exxon to diversify its investments and transition out of its legacy business of oil and gas. Engine enlisted the help of powerful asset manager Blackrock and the huge union pension fund, California State Teachers Retirement System (Calstrs).
The actions of these powerful investment firms and pension funds seem more grounded in woke environmental progressivism instead of sound investment strategy.
The world will need more oil and gas. A 287 report released this month by the International Energy Agency noted that the mining and infrastructure needed to support renewable energy technologies does not exist.
To acquire minerals such as lithium, graphite, nickel, and rare earth metals necessary for renewable energy, the US would have to invest heavily in extensive mining operations. In fact, to meet something similar to what President Biden envisions, the demand for these minerals would need to increase by 4,200%. The world doesn’t have that type of mining capacity.
To make the problem worse, it takes on average at least 16 years to bring mining projects into operation, and we’re talking about a lot of mines!
In the meantime, it seems perfectly reasonable for Exxon’s management to confidently project that oil demand will continue if not increase for many decades to come to fuel the global economy. Oil and gas currently powers 84% of that global economy FYI.
We have entered a strange time in investing. Powerful investing companies and pension funds supported activist investors in a successful proxy fight that will more than likely hurt the business they are invested in.
These new board members will likely push to move Exxon away from its legacy business during a time when there is still much-needed demand for these important resources. These actions could likely make Exxon less valuable resulting in lower stock prices and cuts to dividends hurting the very clients Blackrock and Calstrs represent.
Worse, this very public fight could discourage other corporations to issue more stocks or buy their stocks back. Private companies will see the results of this nasty fight and decide going public isn’t worth the trouble.
The result? Less investing opportunities for mom and pop investors who just want to retire someday.
Milton Friedman’s genius thesis that “the social responsibility of businesses is to increase profits” has been lost to these powerful investor king-pins. This simple principle is now in peril and middle-class investors, not the billionaire fund managers, will be the ones who suffer the most.
