An unorthodox alliance takes on Big Oil
By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets
Exxon Mobil has a growing number of shareholders speaking up and engaging in activism. DE Shaw, the US-based hedge fund, recently took a position in the company to advocate for change, and the Church of England has now also spoken up to support changes put forward by another investor.
DE Shaw has a slightly different aim from the rest of the investors. It wants Exxon to cut costs to protect the dividend payment. It is also concerned that Exxon is performing below competitors like Chevron, especially in this turbulent year. Its goal is to make a good return from Exxon in the shortest time frame possible.
A few days before DE Shaw announced its position, a different activist campaign was launched by Engine No. 1 — a relatively new activist fund that focusses on creating a positive impact. Engine No. 1 put forward four names for the board and several other proposals. Some big shareholders have thrown their weight by this proposal, including the California State Teachers’ Retirement System, the second-biggest US pension fund, and the Church of England.
These activists have a point: Exxon is a dinosaur that needs to embrace change. The company has stuck to oil and is still trying to increase its production. This laser focus on oil has caused a marked decline in the business; no longer is Exxon a trusty American Goliath with power across the world. Only a few years ago the company was still a giant, for example then CEO Rex Tillerson was made Secretary of State by President Trump. It is hard to imagine that happening again.
The C-suite must feel a bit like a sauna this week. Exxon’s management cannot ignore this activism and it must implement changes. Not just to please these shareholders, but also to guarantee the future of the business which at the moment is far from certain.
The unholy alliance of a hedge fund, an impact-driven fund, teachers and the church may just be enough to force Big Oil to make a change. Then again, they have been pretty resistant so far.
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