The Board Whisperer

Commentary by Julie Fox Gorte, Senior Vice President, Sustainable Investing

Connecticut State Treasurer Denise Nappier is recommending that other investors withhold votes for Michael Boskin, a member of the board of ExxonMobil. While it is hardly unprecedented for a shareowner to withhold votes for a director, this is perhaps the first time a major institutional asset owner has so clearly targeted a board member for sustainable governance.

The issue is climate change. Many of ExxonMobil’s shareowners are concerned about the company’s posture on climate change. While the company’s rhetoric has moderated following the very well-remunerated departure of Lee Raymond, the company’s former CEO, many shareowners remain uneasy about the company’s future prosperity in light of a warming globe. Remember the ABCs of climate: anthropogenic emissions of greenhouse gases are causing the earth’s climate to warm, which will bring with it a Pandora’s box of consequences that are bound to ruin someone’s day (more severe storms, changing patterns of heat, flood, fire, drought, expanded ranges of tropical disease vectors; loss of coral reefs, and sea-level rise). The biggest culprit is carbon dioxide, and most of that comes from the combustion of fossil fuels.

ExxonMobil is the world’s largest integrated oil company, and one of the world’s largest companies of any persuasion, and therefore it has a disproportionate share of power to affect the future course of the planet, as well as its own shareholders, workers, and host communities. Power is joined at the hip with responsibility. Many oil companies understand this, and have taken significant steps to control their own greenhouse gas emissions, invest in cleaner forms of energy, and support public policies to regulate GHG emissions. ExxonMobil has been a laggard in this regard — a nd this could represent a risk to shareholders, not to mention our small blue planet. Sea-level rise alone is enough to give anyone pause, especially if they live somewhere like the Outer Banks or the Marshall Islands or — well, Manhattan.

So for many years shareowners have been urging ExxonMobil to develop a plan to reduce emissions, to do a risk assessment of the impacts of climate change, and (back in the days when it was more vocal about its skepticism of climate science) account for its cynicism regarding the mainstream of climate science. Their success in bringing about desired changes has been both slow and meager, and so, instead of talking just to management, the state of Connecticut asked to talk to the board, and specifically to Michael Boskin. Mr. Boskin is the chair of ExxonMobil’s Public Issues Committee, whose duty it is to advise management on public issues “of significance,” which in my thesaurus is a synonym for “things that might drown Manhattan.”

Alas, Mr. Boskin has apparently refused to meet with Treasurer Nappier. I made a mental list of all the reasons I could think of for refusing a relatively simple request for a meeting, just to see if there could be some well-reasoned, thoughtful objection that wasn’t intuitively obvious at first blush. Here’s what I came up with:

  1. Just talk to management; they’re the ones who really run things. Tried that. Didn’t work. From a governance standpoint—management doesn’t work directly for shareholders. Directors do. That’s why they are elected by shareholders.
     
  2. Directors of big corporations are important people with busy lives, and can’t take time to meet with every shareholder to discuss every concern. True. But the Connecticut Treasurer has a day job too, and she doesn’t demand to meet with board members just to fill up her empty hours. Ms. Nappier’s request, more over, came not just from her state alone, but was made on behalf of many other investors with combined total assets of $658 billion. If a board member is too busy to meet with shareowners wielding nearly two-thirds of a trillion dollars, perhaps it’s time to rethink the number of commitments.
     
  3. Climate change is not a financial issue. There was probably a time when nearly everyone on Wall Street and in corporate boardrooms might have agreed. Game over. In the past few years, many financial analysts at blue-chip institutions have concluded that climate change in fact represents a major source of material risk and opportunity, particularly in industries that are either significant emitters or whose products are the source of significant emissions. If climate change is not a financial issue, then Goldman Sachs, Morgan Stanley, Citigroup, UBS, Société Générale, Lehman Brothers, Marsh, Allianz, AIG, Swiss Re, and Munich Re are going to be so embarrassed.
     
  4. The company has changed its tune already; there’s no need to discuss it. True, the ExxonMobil music track has gone from The Ride of the Valkyries all the way to elevator music: very bland, a bit soothing, but not very memorable. The most significant commitment the company has made is a $100 million grant, stretching over 10 years, to fund Stanford University’s Global Climate and Energy Project, which searches for energy technologies with lower emissions. $100 million is a lot of money, and it can generate a great deal of productive inquiry at a place like Stanford (which, by the way, employs Mr. Boskin). But let’s also look at it in context. In 2003, when the grant was announced, Exxon-Mobil’s net income was $21.5 billion. Assuming the company works around the clock, the $10 million that was that year’s contribution represents the net income made by ExxonMobil in just about four hours. Some more context: when CEO Lee Raymond retired in 2006, the company bestowed roughly $400 million on him, in pension, stock options, consulting arrangements, and various perks. It was a generous sum indeed for a CEO who presided over a company that, throughout most of the years since the turn of the millennium, underperformed its peers in total shareholder return, according to The Corporate Library. Finally, when BP announced its own commitment to building a renewable energy business, it committed $1.8 billion over three years. Comment would be superfluous.
     

Most director elections are about as riveting as watching paint dry, considering that, unlike other events we know as “elections” in this democracy, there is usually only one candidate running unopposed for each seat, and shareholders cannot vote against them; they can either vote for them or not vote at all. But this one should be a humdinger. I’m looking forward to it—vicariously, anyway. Pax does not own shares of ExxonMobil because the company doesn’t meet our sustainability criteria.

1ABC News, “Oil: Exxon Chairman’s $400 Million Parachute,” April 14, 2006.
2Alexandra Higgins, Executive Compensation Report 2006: Petroleum Industry, September 2006, p. 11.
3“BP Forms BP Alternative Energy,” BP Press release, November 28, 2005. Posted at http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7012352