5-28-08 by dugan
Today’s large-shareholder revolt against Exxon’s management got just under 40% of shareholder votes today about what it got at last year’s annual meeting. Exxon viewed it as a victory, but having
to mount a fight against the big pension and union funds that hold a
trilliion dollars of the company’s shares is no point of pride. The big
funds are rightly worried that Exxon’s board of directors is a tool of
management, not an independent voice. That in turn allows combined
chairman/CEO Rex Tillerson to act as king, brushing aside shareholders
who see his sole focus on oil and his scorn for renewable energy as an
ultimately losing game.
The main vote was over whether
Tillerson should give up his dual title as both CEO and board chairman,
which is the key to an independent board. This year’s battle made news
because the descendants of John D. Rockefeller, father of Exxon, joined
forces in favor ot the split. The family was also vocal in its demands
that Exxon at least pay attention to climate change and spend a
fraction of its $40-billion yearly profit on developing non-petroleum
energy. Exxon currently spends only $10 million a year on such
research, and zero on commercial development.
Shareholder battles against management almost never win. The exception, in the case of Exxon, was a 2006 resolution reacting to
outgoing chief executive Lee Raymond’s a final-year pay package of
$69.4 million and a retirement lump sum of $98.4 million. But even that
resolution, also aimed at reforming the board of directors, was
nonbinding.
Exxon thus gets to keep its top-down, no arguments,
oil-only management focus. It also gets to keep the doubts and mistrust
of its largest shareholders. They see that their recent profits from
Exxon are coming at the cost of costly world climate change, to say
nothing of short-term trashing of the U.S. economy that suppresses the
rest of their stocks. If a retirement fund gains 15% in a year on its
oil stocks, but the rest of the Dow sinks 15%, retirees don’t come out
ahead.
The big funds are also paying attention to the increasing
belief that today’s oil prices, still above $130 a barrel, are a bubble
that must ultimately pop. Exxon, with its sole focus on oil, is
currently the most profitable private corporation in the world. That
focus could also make it the biggest loser in the long run.
For now, however, profit is everything. Tillerson, in his statement to shareholders, talked of little else. He also crowed about its 32% return on capital over the last year. That’s the real measure of industrial profit, not the 10% or 11% return on total revenue that Exxon puts out with its quarterly and annual profit reports. Measured by return on capital, Exxon has at least double the profit margin of other large industries. But the trick works, since the media meekly report Exxon’s profit at the lower figure, while Exxon saves its real profit percentage for boasting to investors.