The three largest U.S. pension funds are backing a bid by hedge fund firm Engine No. 1 to replace board directors at Exxon Mobil.
The $460.8 billion California Public Employees' Retirement System, Sacramento, the $291.7 billion California State Teachers' Retirement System, West Sacramento, and the $247.7 billion New York State Common Retirement Fund, Albany, are joining the newly formed hedge fund firm in challenging the slate of directors backed by Exxon Mobil that will be up for election at the energy company's May 26 annual meeting.
The shareholders are challenging whether the directors have sufficient energy industry experience to help the company prepare for "value-creating, transformative change in the energy sector," Engine No. 1 said in a statement. Eleven of the company's 12 director nominees are independent.
CalPERS investment director and head of corporate governance Simiso Nzima said that the pension fund is supporting the board changes because of long-term financial underperformance and the need for a greater depth of skills and experience to address the significant challenges the company faces. “In order to effectively oversee the transition to a low-carbon economy, we believe the board would benefit from additional expertise in both its core business and in renewable energy technologies,” he said.
A CalSTRS spokeswoman said in an emailed statement, “We’re pleased to see growing support for Engine No. 1’s candidates for the Exxon Mobil board. These candidates have the skills and experience necessary to enhance long-term shareholder value and lead Exxon Mobil through the global energy transition.”
In its own proxy materials promoting four other directors, Engine No. 1 said that "ExxonMobil's iconic status is being chipped away in the face of diminished returns, high debt levels and questions about its ability to maintain its dividend. We believe repositioning ExxonMobil for long-term value creation will require an understanding of the trends shaping the future of energy and the opportunities they create, yet none of the independent board members have any other energy industry experience.”
New York State Comptroller Thomas P. DiNapoli, sole trustee of the pension fund said in his voting position that "Exxon's board needs an overhaul. We continue to be deeply concerned about Exxon's failure to manage climate risk and refusal to heed calls to transition to a lower carbon future. ... We are supporting Engine No 1's slate of candidates because they bring transformative industry experience to the table and hold out hope that it is not too late to turn the tide at Exxon and improve its performance."
Exxon Mobil posted a letter to shareholders Monday asserting the board and management team's commitment "to pursuing the right, technology-driven strategy to succeed through the transition to a lower-carbon energy future," while the "months' old hedge fund, Engine No. 1, wants your company to pursue a vague and undefined plan — which we believe will jeopardize our future and your dividend."
In a March 16 proxy statement urging shareholders to elect the company's directors slate, Exxon Mobil Chairman and CEO Darren Woods said the board in recent years has added directors with deep expertise in climate change, financial markets, capital allocation, energy transition, and environmental, social and governance practices, and that its investments in commercially attractive low-carbon technologies "will be an integral part of our long-term strategy."