Corporate Governance

Exxon-Mobile, Mirror-Image Boards, and Comeuppance in the Market

By J. Robert Brown

Exxon-Mobile is an oil company, as it likes to say.  As such, it has had a history of resisting pressure to do more in the area of alternative energy sources and the reduction of green house gasses.  In 2008, the company confronted a shareholder revolt over the issue, led by the Rockefellers.  A series of shareholder proposals in the area failed, although they garnered considerable support. 

Like a war time president, many shareholders at the last meeting no doubt were willing to leave well enough alone as the profits poured in.  Management could fend off pressure to change mostly because it operated the company as a huge money making machine, setting a record for profits last quarter of almost $15 billion (breaking its own record from the quarter before). 

But the high profitability couldn't last.  As a result, despite the victory at the shareholder meeting, common sense suggested that the company had some serious work to do in repairing its image and in considering the profitability of green technology and energy.  Apparently the opportunity was wasted. Despite some shift in tone, the company remains committed to its hydrocarbon strategy.

• But while Exxon is slowly unshackling itself from Mr. Raymond’s stance on global warming, it remains faithful to his legacy by dismissing most green alternatives and sticking with hydrocarbons. Although the company’s tone has changed, its strategy has not. Despite growing pressures on oil companies to invest in alternative energy, Exxon’s long-term view remains unapologetically tied to fossil fuels

With oil prices plummeting  back to the $50 a barrell range, the massive oil company is not the same darling of the marketplace.   As the NY Time described (See Green Is for Sissies):  "Exxon’s shares are on track for their worst performance since the early 1980s, a result of the market sell-off and the drop in oil prices recently."  Moreover, its strategy looks increasingly out of date and out of sync with the interests of investors and the new administration.

• The question for Exxon, which Mr. Obama repeatedly singled out as an exemplar of corporate greed during the presidential campaign, is whether the model that has served the company so well for so long will keep it competitive — or whether it will still be producing hydrocarbons long after the world has moved away from dirty fuels.

The question, as always, in these circumstances, is where was the board during this reprieve period? The company has a mirror image board.  This is defined to mean a board that is not diverse and looks remarkably like the CEO. In addition to a noticeable lack of diversity (according to the proxy statement, two women, one person of color, only two younger than 60). 

It is clear that Rex Tillerson, the CEO, is steeped in the internal culture of Exxon, having joined the company in 1975.  He could use a little hard advice from people with a different background about the perception of Exxon in the real world and about the need to move in a new, pro-environmental direction, both for the public relations value and for the future profitability of the company. 

But, from all appearance, this mirror image board is unlikely to deliver that message.  In addition to looking a lot like Tillerson and therefore likely having many of the same views, the directors earned last year somewhere around $400,000 in total compensation for 11 meetings.  It is a nice sinecure that could be lost by questioning the CEO.  It is a board unlikely to take control over the flow of information it receives (a task left to the chairman, who happens to be the CEO) or to provide the brutal advise that management ought to be hearing about the company's reputation in the community.

This is a classic example of a board that might benefit from shareholder access to the proxy statement and the threat of a proxy contest.  Perhaps that would cause the board to nominate a more diverse set of directors and focus more closely on the interests of shareholders.

Full post as published by The Race to the Bottom on November 17, 2008 (boomark / email).