Can Shareholder Activists Force the World's Biggest Oil Company to End Discrimination?

Much of corporate America has accepted gay rights. But Big Oil has a big holdout, and shareholder activists are determined to drag it kicking and screaming into the 21st century. Today, the shareholders of oil giant Exxon Mobil are meeting in Dallas to vote on a proposed company policy to ban discrimination against gay or transgender workers.

This year’s shareholder resolution has been pushed by New York Controller Thomas DiNapoli. Can it work? Does a ginormous company like Exxon Mobil really have to listen to its shareholders?

Money Talks

In the world of corporate America, money talks. Shareholders frustrated by harmful policies are increasingly insisting that companies listen up. NY comptroller Thomas DiNapoli is clear that Exxon – the world’s largest company in terms of revenue -- had better pay attention, because he is willing to use the muscle of the state’s $150 billion pension fund's stock portfolio to push for rights of transgender workers.

The controller’s office reports that it has helped convince 27 other big corporations to accept new gay-inclusive nondiscrimination policies. So far, Exxon Mobil has refused to do so, calling the measure unnecessary and asserting that the company is already a cheerful “meritocracy” for its 82,000 workers worldwide. Seems that Exxon just doesn’t want to put its professed embrace of LGBT workers in writing. That’s a problem, because as Crosby Burns of the Center for American Progress points out, the company’s home state of Texas has no statutory protections against LGBT job bias.

This year, the company’s board actually tried to get the Securities and Exchange Commission to block the resolution from coming before shareholders, but the agency nixed the request in March.

DiNapoli, who is the sole trustee of a retirement fund with about 16 million shares worth $1.3 billion, observes that after Exxon acquired Mobil in 1999, it killed Mobil’s policy of providing health benefits to same-sex partners except those previously covered. Like many, he believes the company needs a clearer anti-discrimination policy and that without it, Exxon will fail to attract the best talent and foster a secure working environment for employees. Many such resolutions have been floated since 1999, but Exxon won’t seem to budge.

DiNapoli’s stance rests on the fundamental principle that when corporations behave in ways that benefit society, they also help their bottom line. His office, with shares in other corporations that usually make up less than 1 percent of the totals, has also been pressing many corporations to disclose their political spending and the extent of their environmental damage, including possible future harm from a company’s activities like wastewater dumping and fracking, which can result in lawsuits and liabilities.

In a recent interview with Eliot Spitzer, Tico Almeida, founder and president of Freedom to Work, described a petition he created to highlight Exxon’s failure to protect LGBT employees. Calling the company “Neanderthals,” Almeida said, “they are decades behind in adopting the principles of corporate leadership that so many Fortune 500 companies have already adopted because it’s the right thing to do for business."

The Rise of Shareholder Activism

In the past, shareholder meetings were often eye-glazing affairs where CEOs rattled off lists of accomplishments and to-dos for the year ahead. But things have gotten more interesting of late, as shareholder activists use increasingly sophisticated techniques to get their point across.

Shareholder activism arose during the 1970s when religious investors formed a coalition (the Interfaith Center on Corporate Responsibility) to push for socially responsible changes in corporate policies. Since then, it has become a useful tool to encourage better corporate behavior on social and environmental issues.

The financial crisis has added fuel to the shareholder fire, and investors have increasingly awakened to the fact that they can vote their shares in a way that targets incompetent executives and abusive policies. The California State Teachers Retirement System, for example, is challenging the reelection of the Wal-Marts in the wake of an alleged bribery scandal the retailing giant is dealing with in Mexico. In April, Citigroup shareholders rejected CEO Vikram Pandit’s $15 million pay package.

More disclosure and the chance to find information on the Internet has given shareholders the means to identify specific board members and find out what they are up to and how much they are being paid.

As Leo Girard recently put it on AlterNet:

"A wave of corporate change is rising because the rabble and the stockholders share an interest: decent corporate governance. To shareholders, decent means more long-term corporate vision providing reasonable returns and fewer risky, quick-profit schemes benefiting only executives. To workers, the unemployed, community and environmental groups, decent means operating corporations in the best interest of the nation, including treating workers with dignity and refraining from polluting. Together, the rabble and the shareholders wield power.”

Is It Effective?

Engaged and vocal investors have shown they can successfully advocate for causes that benefit both American business and society. But the recent rise of shareholder activism points to both their strengths and weaknesses in the United States. William Lazonick, an expert on the American business corporation, notes that in the U.S. shareholders like DiNapoli face serious limitations:

“They do have the right to question management on social issues such as discrimination, pollution and support of repressive political regimes. But, under the business judgment rule that comes out of common law, shareholders do not have the right to question management on business issues such as pay levels (unless they are, under the law, discriminatory against certain social groups), acquisitions, divestitures, layoffs, etc. That is why there had to be a special "Say-on-Pay" provision of Dodd-Frank to even give shareholders the right to make nonbinding recommendations to management on executive pay.”

The “business judgment rule” Lazonick references protects corporate boards from claims that their decisions were wrong, stupid or even harmful. So unless shareholders can plausibly demonstrate that the board’s decision was egregiously uninformed or marked by self-interest, shareholder challenges to corporate decisions tend to gain little traction. This explains why corporate boards often feel safe making decisions that go against shareholder wishes.

So how do we fix this? For starters, giving taxpayers and workers seats on corporate boards would be an improvement. Germany does this and it works very well. Also, shareholders can form worker-owned companies (ESOPs). Above all, the nation requires a strong union movement like that of Sweden, for example, with laws giving workers a voice.

Exxon Mobil may very well decide again to ignore the calls to end discrimination, which is an especially galling idea considering it would not be such a successful corporation in the first place if not for all the cushy federal contracts provided by our government.

If Exxon continues to drag its knuckles, maybe you’ll decide to fill up your tank somewhere else for that summer road trip.


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