Ethical Insights - Exxon’s Retail Voting Program

On the 15th of September, the United States Securities and Exchange Commission (SEC) confirmed in a letter to Exxon Mobil that it would not recommend enforcement action if the company were to implement its proposed Retail Voting Program.

Exxon Mobil has effectively been given the all clear by the US SEC to introduce a new voting tool for its shareholders. The company’s proposed “Retail Voting Program” will allow retail investors to opt-in for a service designed to automate their voting, specifically in line with the recommendations of the company’s Board.

In a press release, Exxon stated that this new system has been designed to encourage retail investors (who make up 40% of its shareholders) to engage in the voting process, given that historically they have not. The reason, according to Exxon, is because “reading all those shareholder proposals takes too much time”.

It also suggests that individual investors lack access to the type of services that make voting quicker and easier for their institutional counterparts, a gap which it claims is often exploited by activist groups to “push political goals at the expense of shareholder value”.
In summary, Exxon’s argument is centred around levelling the playing field in the name of fairness, and making an “important step forward for American shareholder democracy”.

At Ethical Investors, our take is this - while it is hard to argue against Exxon’s suggestion that increasing the level of democracy within shareholder voting is a good thing, we still have some concerns, and some recommendations for investors.
However, we first want to highlight that the SEC has approved Exxon’s proposal on the basis that, as it promised in the company’s initial letter, protections will be in place.

Exxon, for example, stated it will ensure that participating retail shareholders “will have the ability and choice to opt out and cancel the standing voting instruction at no cost”, and that they “will be reminded of their ability to opt out and cancel their standing voting instruction with respect to subsequent meetings”.

That is not where our concerns lay.

Our first concern is that the proposed system only appears to simplify the voting process for shareholders that wish to vote in line with the recommendations of the Board; those that do not will still have to participate in the voting system the old-fashioned way, it seems.
To us, this feels like enhancing democratic proceedings, but with the caveat that you have to agree with what is being suggested by those on the inside.

Secondly, we will be watching with interest to see if this decision by the SEC will act as a precedent, and if numerous other US companies follow suit. If so, we might see the power and influence of activist investors start to wane, assuming that systems such as these do prove to bolster support for voting recommendations made by Boards.

Our advice for investors is as follows - if we are to see more companies introducing these voting systems, and if you want to use your voting power (and don’t necessarily want to automatically vote in line with Board recommendations) then check your portfolio. For you, it may be worth finding out if you are directly invested in any companies and, if so, that you have not been opted-in. If you want to choose how to vote, then make sure you’re opted out.

Similarly, it would be worth engaging with any instructional managers who look after your assets to make sure that your views are also being heard at that level. It is, after all, your money they are managing.

Cameron Barker - Communications and Marketing Lead