The U.S. Securities and Exchange Commission (SEC) issued a “no-action” letter on Monday, indicating that it would not block a plan by oil giant Exxon Mobil (XOM) to build an auto-voting system before next year’s proxy season. This new voting mechanism will enable investors to automatically vote in line with the recommendations of the board of directors, helping Exxon counter the influence of activist investors.
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Exxon’s Auto-Voting Mechanism to Fight Shareholder Activism
Exxon’s retail investors who agree to be included in the company’s auto-voting plan would have their votes counted in favor of management’s proposals during annual meetings unless they choose to opt out. The SEC stated that it would not object to Exxon’s plan as long as the company met certain conditions, including providing annual reminders to investors who agreed to participate in this mechanism.
The idea of an auto-voting mechanism arises as Exxon seeks to counter growing activist investor campaigns targeting the company over climate change, governance, and executive compensation. In fact, in 2021, Exxon was defeated by a small hedge fund called Engine No. 1, which won three seats on the company’s board following a campaign that cautioned the oil major faced an “existential business risk” by relying on fossil fuels.
According to The Financial Times, the SEC’s guidance may encourage other U.S. companies to establish similar mechanisms to combat activist investors, which corporate governance experts think could reduce the power of proxy advisers and activists to exert influence over investors’ votes.
Meanwhile, Exxon argues that activists often exploit the fact that retail investors lack access to several services that make voting fast and easy for larger investors. According to Reuters, the company plans to notify retail investors in the coming weeks through their brokerages about enrollment in its free program, which allows them to vote their shares in line with management recommendations. Exxon claims to be the first U.S. company to offer such an option. The company highlighted that about 40% of its shares are held by individual investors, but only a quarter of them vote during the proxy season, although they generally support the board.
Is Exxon a Buy, Sell, or Hold?
Given the impact of macro uncertainties on oil demand, Wall Street is cautiously optimistic on Exxon Mobil stock. The Moderate Buy consensus rating on Exxon stock is based on 12 Buys and seven Holds. The average XOM stock price target of $125.63 indicates about 12% upside potential. XOM stock has risen more than 4% year-to-date.
