How to Reestablish the Authority of Corporate Law in the Shareholder Proposal Process
The shareholder proposal process has gone too far. How else to interpret the proposal recently sponsored by the climate activist investors Arjuna Capital and Follow This at ExxonMobil, which called on the oil giant to reduce further its carbon footprint? The company in response took the extraordinary measure of filing suit in federal court seeking a declaratory judgment permitting it to exclude the proposal from its proxy statement and not present it for a vote at the annual meeting. Soon after, the sponsors withdrew their proposal.
Though the litigation remains active, the lack of any case or controversy for the court to resolve may scuttle the prospects for a judicial decision, leaving unaltered for now the troubling manner in which the SEC oversees its shareholder-proposal process. We argue that the SEC must stop overreaching in this area and allow private ordering under corporate law to reestablish shareholder proposals as ways to enhance economic efficiency rather than diminish it.
The Shareholder Proposal
Arjuna and Follow This filed the following proposal for shareholders to consider at ExxonMobil’s 2024 annual meeting:
Resolved: Shareholders support the Company, by an advisory vote, to go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions across Scope 1, 2, and 3, and to summarize new plans, targets, and timetables.
Scope 1 refers to direct GHG emissions from the company. Scope 2 refers to indirect GHG emissions from the utilities that a company purchases. Scope 3 refers to indirect GHG emissions that result from the activities or assets upstream or downstream along the company’s value chain not owned or controlled by the company, “such as the burning of gasoline by a motorist.”
The support statements included with the Arjuna-Follow This proposal explain that the activists want Exxon Mobil to reduce its operational GHG emissions by 50 percent on an absolute basis by 2030 and to introduce targets reducing Scope 3 emissions consistent with limiting global warming to 1.5 degrees Celsius. To accomplish such an aggressive timetable, ExxonMobil would probably have to give up its planned $60 billion acquisition of Pioneer Natural Resources, and severely contract current operations.
Board Authority
The rationale for this type of proposal is baffling. The company’s board and its Environment, Safety and Public Policy Committee regularly engage with senior management on climate matters. Moreover, ExxonMobil provides a comprehensive annual report on its historical performance and goals for reducing GHG emissions over time. To be sure, the activists and the board disagree on how fast the company should be moving to reduce emissions – but under corporate law, these types of decisions are to be made by the board, the most informed locus of authority in a corporation. The submission of this proposal is a direct result of the SEC’s increasingly permissive and arguably lawless regulatory approach to shareholder proposals.
Continue reading the entire piece here at The CLS Blue Sky Blog
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James R. Copland is a senior fellow and director of legal policy at the Manhattan Institute. He is the author of “The Unelected: How an Unaccountable Elite is Governing America.” Follow him on Twitter here. Bernard S. Sharfman is a research fellow at the Law & Economics Center of George Mason University’s Antonin Scalia Law School.
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