Exxon Mobil can proceed with its lawsuit against Arjuna Capital even after the activist investor group withdrew a shareholder proposal the company opposed, a federal judge ruled.
The Houston-based oil giant filed the suit in a novel move to use the courts to keep environmental and social investor bids out of annual meetings. It’s part of a broader corporate pushback to the power wielded by the SEC in the vetting of shareholder proposals.
The ruling May 22 by a judge in Fort Worth, Texas, will allow Exxon to pursue claims that Arjuna abused the shareholder vote process by buying minimal shares to campaign for proposals that “are calculated to diminish the company’s existing business.”
In response to the judge's ruling, CalPERS CEO Marcie Frost said executives at the $485.8 billion pension fund are "disappointed, but not surprised, that the court is permitting Exxon Mobil to plunge forward with its wrongheaded lawsuit."
"The company’s dangerous legal gambit, if successful, would undermine shareholder rights and allow corporate leaders to stifle the ideas of investors with impunity,” Frost said.
On May 20, CalPERS announced that it planned to vote against Exxon's entire board of directors at the company's May 29 meeting and urged other investors to do the same. The California Public Employees’ Retirement System, Sacramento, which owns about $1 billion of Exxon stock is taking this action due to the company's continuing a lawsuit against the two shareholder groups even after they had withdrawn a proposal urging Exxon to take more action on climate change.
Arjuna and another activist group targeted by Exxon’s suit called Follow This had argued that because they rescinded the proposal that the company didn’t like, the lawsuit was no longer relevant and should be thrown out.
U.S. District Court Judge Mark Pittman found that Amsterdam-based Follow This didn’t need to be part of the case for the claims against Arjuna to proceed and that it would be more difficult for Follow This to litigate in Texas than it would be for Arjuna.
Pittman agreed with Exxon’s argument that even after the one offending proposal was pulled, there is nothing to stop the activist groups from continuing to file similar ones.
“As worded, Arjuna’s letter allows defendants to take the 2024 proposal, add an Oxford comma here, shorten a sentence there, and submit the results anew for Exxon’s shareholders,” Pittman wrote in the order.
A representative for Arjuna didn’t immediately respond to a request for comment.
Publicly traded companies typically debate the merits of individual proposals with the SEC, which can advise whether they be excluded from the ballot. But critics of the process, including Exxon, claim the SEC’s advice can vary widely depending which administration is in office.
Exxon’s highly unusual decision to seek legal judgment rather than going through the SEC tests corporations’ ability to shut down activist investor proposals they don’t like.
The U.S. Chamber of Commerce and the Business Roundtable backed Exxon in a February court filing. The business trade groups said the SEC’s decision to allow “shareholder proposals pushing social and political agendas” enables “a subset of activists to commandeer corporate proxy statements for their own parochial ends.” This takes time away from “genuine proposals” and wastes company money printing and distributing the activist proposals, they said.
Arjuna and Follow This argued that Exxon is using the lawsuit to “fight a proxy war” with the securities regulator.
Arleen Jacobius contributed to this story.
