There is no turning back the clock for ExxonMobil after its defeat at the shareholder ballot box on 26 May, but the path forward may be a return to its past, when the company's focus and discipline made it the envy of the business world.
Tiny hedge fund Engine No 1's success in seating at least two of its nominees on the board against the wishes of top executives shows that the C-suite's incremental approach to a lower-carbon future was sorely lacking. The company has set out only modest emissions goals even though it started a low-carbon business earlier this year, as chief executive Darren Woods made the case for continued investment in oil and gas for years to come.
Fund manager BlackRock's vote bulletin outlined its rationale for supporting some of the Engine No 1 nominees — including the benefits of broader energy experience — amid concern that the firm's plan to navigate the energy transition "falls short of what is necessary to ensure the company's financial resilience in a low-carbon economy". Given the speed at which net zero targets are being adopted across various industries, it is "no longer appropriate to have your head in the sand", shareholder advocate As You Sow president Danielle Fugere says in relation to ExxonMobil.
A leaner, more focused oil company — albeit one that had already been scaling back ambitious expansion plans in response to the pandemic — may be one way forward. "Shrink the company, raise returns and thereby solve the emissions issue by being smaller," suggests independent analyst Paul Sankey. But the challenges at ExxonMobil in recent years have not simply been about size, but successful execution — something that had for many decades been its hallmark as a global energy giant. And its poorly managed entry into US shale has underlined a recent record of lacklustre returns.
While the final shareholder vote is not yet known, the two Engine No 1 nominees who made it on to the board — refining industry veteran Gregory Goff and renewables expert Kaisa Hietala — can point to some successes of their own that would have been worthy of the old ExxonMobil. During Goff's eight-year stint as chief executive of US independent refiner Tesoro, renamed Andeavor, the firm generated 1,224pc in returns to investors. His transition management credentials include developing an integrated west coast system designed to ensure the firm could be the last refiner standing in an increasingly hostile environment. Goff's immediate focus at ExxonMobil may be its management structure. "Anyone who thinks that Greg Goff is going to storm into the ExxonMobil boardroom and start yelling about wind farms does not know Greg Goff," Sankey says.
Transition revamp
Hietala began her career in upstream oil and gas exploration and crude trading and later served as executive vice-president of renewable products at Finnish oil firm Neste for five years up until 2019, playing a key role in the company's transformation into the world's biggest producer of renewable diesel and jet fuel, with a sixfold rise in its share price over the same period.
ExxonMobil is not alone in finding itself in the crosshairs of investors. Pressure is building on US drillers to adopt more sweeping climate targets. At Chevron's annual general meeting on 26 May, 61pc of shareholders ignored the board's recommendation and voted in favour of a proposal to cut Scope 3 emissions, those from customer use of the products it sells. Yet the key outcome of ExxonMobil's shareholder battle could be a re-evaluation of different parts of the business and more asset sales. "What you are going to see is a serious focus on whether the company's too big," energy analyst Philip Verleger predicts.
