Wall Street vs Big Oil: The Leadership Showdown That Shooketh the Industry
The writing is on the wall, but will ExxonMobil read it this time?
I’ve talked about groupthink and its corrosive effect on the venture capital industry, but the recent “monumental” takeover at ExxonMobil by a tiny hedge fund is certainly in this same vein. Engine №1 — the plucky little hedge fund that could — now controls 0.02% of ExxonMobil because CEO Darren Woods dismissed the ample warnings until it was too late. The humiliation of having to pause the shareholder call for an hour to beg investors for help is likely seared in his mind, but it didn’t have to play out that way.
Accepting reality is a strategic move
Rather than taking stock (ha!) of the current environment, Exxon has continued staunchly and aggressively denying climate change, which they have done since the 90s. But…times have changed. Exxon just had its worst performance in 40 years, debt is through the roof, they lost $22B in 2020, and dividends didn’t increase for the first time since 1982. Barron’s has even speculated that the dividend may soon get axed. That’s rather bleak for Rockefeller’s prized Standard Oil, which was the world’s largest publicly traded oil company just a decade ago.
Culture has drastically changed — climate denialism doesn’t fly anymore and the ocean was just on fire. Even monster index fund BlackRock has come out strong in support of climate change being a significant risk to investors. Instead of demonstrating leadership and vision in the face of a changing competitive landscape, CEO Darren Woods acted like an ostrich by choosing to bury his head in the sand and ignoring the glaring signals around him.
Social collusion
It’s been a few months since online forums colluded against the markets in the Gamestop debacle, only this time Wall Street was spared, and Exxon took the beating. Engine №1 mobilized to pull off this “coup” by persuading institutional investors holding 49.99% of Exxon’s outstanding stock to join the crusade. This is the first time in history a US oil company has witnessed a shareholder’s revolt regarding climate change. Yasmin Dahya Bilger, Head of ETFs at Engine №1 summarized their stance: “We really believe the positive and negative impact a company has are not just ideological issues, they’re economic issues, they’re shareholder issues.” They weren’t kidding.
Major investors like Vanguard and BlackRock have deemed Exxon leadership unprepared for a low carbon future and demonstrated their own willingness to hold the line by holding company executives accountable for failing to read the room. Shareholders reigned in the party by booting a minority of the board and it doesn’t appear they’ll stop there. In fact, Chris James, the founder of Engine №1 has stated that “Our ambitions are clearly broader than Exxon.” Well, then! Game on.
New world order
Along with Exxon, Shell and Chevron also had a brutal week, having each been taken to task over their contributions to climate change. Chevron shareholders pushed for more significant carbon cuts and Shell lost a major case in a Dutch courtroom. This is the first time the oil trio has been forced to face accountability for their actions — and that’s a boon for business.
Shareholders are motivated by money, and they are quickly pivoting to clean energy because they realize that’s where sustainable long term profit lies. Acknowledging the decline in big oil and taking this new world order seriously is the strategic path to delivering shareholder value. BlackRock has been proudly touting ESG investments and now Engine №1 has created the Transition 500 ETF Fund to force change and they have committed to rolling up their sleeves to fight for issues they believe in. The Exxon shenanigans were certainly a watershed moment for Wall Street and big oil, but the mudslinging has just gotten started.
Hubris doesn’t need to be Exxon’s undoing
Money talks, and this coup was the only way to grab Woods’ attention since the writing scrawled on the wall wasn’t doing the trick. With Engine №1 going on the offensive and Exxon’s performance no longer strong enough to protect themselves from shareholder consequences, Darren Woods may want to pay attention. Accelerating out of this curve will require solid leadership with a strategic eye, but that first requires acknowledging reality.
Accepting the ugly truth is a key leadership quality because it sets one free. The truth is the best jumping off point to make decisions, as it brings clarity to strategizing the next move, and serves to eliminate embarrassing surprises. To quote myself, “how a leader absorbs and acts on new information as it arises is indicative of their capacity to actually lead.” Thanks to Engine №1, Exxon has been presented with a fantastic leadership opportunity.
Darren and the executives at Exxon should gracefully accept that their position as an untouchable oil giant has eroded and make moves to build an investment environment that can take them and their shareholders into the future. With institutional and retail investors voting in tandem for key issues, resistance appears to be futile. Big oil and big investors are on notice. Engine №1 demonstrated they can force change with such a tiny active stake. The future is now.
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