Exxon Mobil Corp.’s shareholder meeting last week seemed to signal that the major asset managers have turned the page on progressive-leaning corporate activism. The same can’t be said for the proxy advisory firms that continue to lead many investment managers and pension funds astray.
The oil and gas behemoth voted to move its legal home to Texas with 71.3% approval from shareholders. It was a stark rejection of advice from the two dominant proxy firms, Glass Lewis and Institutional Shareholder Services, which both opposed the move. Given that Vanguard Group Inc., BlackRock Inc., and State Street Corp. hold 22% of Exxon’s shares, it also seems clear that some or all of them ignored the proxy firms and got behind the Lone Star State migration.
If the asset managers backed the Exxon move, as the vote margin suggests, it could have major implications for other large cap public companies that are considering a Texas redomicile. The big three passive investors collectively own approximately 20% of the average S&P 500 company, making them the largest shareholder in nearly 90% of these companies. Moreover, the Exxon approach provides other widely-held public companies with a playbook for how to gain investor approval for a Texas redomicile, even over opposition from the proxy firm duopoly.
Just a few years ago, the odds of BlackRock backing an oil and gas major’s move to Texas was about as likely as the New York Knicks making the NBA Finals. But no one should be surprised if it and the other big asset managers voted for Exxon’s reincorporation. These firms have worked hard to rehabilitate their reputations with conservative policymakers, who have long viewed them as synonymous with “woke” finance.
Vanguard was the first to break ranks from environmental, social, and governance orthodoxy when, in 2022, it refused to divest from fossil fuel companies and resigned from the Net Zero Asset Managers initiative. BlackRock has moved in a similar direction on ESG and has removed diversity mandates from the proxy voting analysis that it applies to boardroom selection and other key proposals.
BlackRock also was an early supporter of the Texas Stock Exchange, which has been a vocal champion of revamping the state’s corporation laws to create new business courts and codify predictable legal standards for resolving shareholder disputes. Exxon cited these recent measures in its proxy statement to investors as the rationale behind the company’s decision to move its charter after operating as a New Jersey company for nearly 150 years.
Texas’ business reforms have enticed other large companies such as Tesla Inc., Coinbase, and Dell Technologies Inc. to reincorporate in Texas or announce plans to do so. While the big three asset managers haven’t supported every corporate migration to Texas, BlackRock and Vanguard have signaled by voting for Tesla’s reincorporation in the Lone Star State that they are comfortable throwing its shares behind large-cap public companies that seek to take advantage of the state’s stable regulatory environment.
Exxon demonstrated that the Texas move promised upside for management and investors alike, and would not erode shareholder rights. Even the three Exxon directors placed on the board in 2021 through the efforts of activist investment firm Engine No. 1 voted in favor of the Texas reincorporation.
The support of the asset managers could also diminish the influence of the dominant proxy firms, which have already been under attack by executives such as JPMorgan Chase chief Jamie Dimon and Elon Musk. Unlike the asset managers, ISS and Glass Lewis have shown little interest in retreating from policy-oriented adventurism. The Exxon redomicile was a missed opportunity for the two firms to get behind a move that ultimately gained overwhelming shareholder support. If they continue to oppose commonsense company proposals, they may find themselves with fewer shareholders willing to pay for their advice and more regulatory headaches.
Last year, Texas became the first state to pass a law cracking down on the proxy firms’ reliance on ESG and other non-financial factors. Afterward, ISS and Glass Lewis sued to block the measure and began their streak of unified opposition to Lone Star State corporation migrations, prompting Exxon to blast the firms for not disclosing the ongoing litigation when making recommendations on proposals to re-incorporate in the state.
The Exxon reincorporation suggests that companies that want to move to the Lone Star State can gain asset manager approval. The proxy firms are a different story, but that didn’t stop Exxon from winning a critical shareholder vote. If more companies run the same successful campaign as Exxon, the proxy firms may finally start to reform themselves in the same way that the asset managers did a few years ago.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Michael Toth is director of research at the Civitas Institute at the University of Texas at Austin.
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