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Apr 17, 2019

ExxonMobil AGM to include board matrix proposal

SEC denies effort to exclude measure

ExxonMobil shareholders will vote at the company’s AGM next month on whether the board should reveal more details about directors’ characteristics, after the company failed to have the measure nixed by the SEC.

The proposal comes amid continuing focus among investors on diversity at the board level and increasing disclosure on the topic in some proxy statements. Specifically, the proposal, if approved, would request that ExxonMobil’s board disclose to shareholders each director’s/director nominee’s gender and race/ethnicity, as well as skills, experiences and attributes that are most relevant given the company’s business, long-term strategy and risks, presented in a matrix form.

The requested matrix would be presented to shareholders in the annual proxy statement and on the company’s website within six months of the AGM and updated annually.

The New York City Employees’ Retirement System (NYCERS), on whose behalf New York City comptroller Scott Stringer acts, brought the proposal. Stringer has been a major proponent of governance reforms at companies, and his Boardroom Accountability Project is widely viewed as having played a key role in expanding the take-up of proxy access. According to Stringer’s office, the number of companies with meaningful proxy access has grown from six in 2014 to more than 540, including more than 65 percent of S&P 500 companies.

In a supporting statement, NYCERS says: ‘We believe a diverse board – in terms of relevant skills and experience and gender and race/ethnicity – is a good indicator of a well-functioning board. Diverse boards can better manage risk by avoiding groupthink, a cognitive bias whereby homogenous, cohesive groups tend toward standard agreement with known business associates and [do] not challenge basic premises.’

It cites McKinsey research suggesting that companies with greater gender and ethnic board diversity have stronger financial performance, and MSCI research suggesting that gender-diverse boards have fewer instances of bribery, corruption and fraud.

NYCERS states: ‘A board matrix would give ExxonMobil shareholders a big-picture view of nominees’ attributes, both individually and collectively, and how they fit together, thereby enabling shareholders to: (a) assess how well suited individual director nominees are for the company in light of (i) the company’s evolving business strategy and risks and (ii) the overall mix of skills and experiences; (b) identify any gaps in skills, experience or other characteristics; and (c) make better-informed proxy voting decisions.’

The ExxonMobil board recommends that shareholders vote against the proposal. In the proxy, the board states that it agrees diversity is ‘a key attribute of a well-functioning board, and is important information for shareholders. This is one of the reasons we provide detailed information regarding our board in our proxy statement and on our website.

‘After conferring with the proponent, we supplemented this year’s proxy statement with several enhancements, including: a detailed matrix allowing shareholders to easily judge the collective competencies of the board; clarity between board qualifications and the competencies sought for director candidates; descriptions of the relevance of each competency to ExxonMobil’s business; infographics related to gender, race/ethnicity and age diversity; and relevant competencies shown in each director biography. This adds to the data traditionally provided, including lists of the qualifications and competencies sought by the board and a detailed description of how diversity fits into the candidate search process.’

But it adds that imposing a prescriptive matrix by individual director ‘can promote a check-the-box approach to refreshment, thus increasing the risk of bypassing a well-qualified candidate, and may mislead shareholders into wrongly believing that only a subset of directors contribute to particular decisions or represent the board on particular matters.

‘Instead, the board acts as a collective body, representing the interests of all shareholders. While individual directors leverage their experience and knowledge, board decisions and perspectives reflect the collective wisdom of the group. The breadth of our disclosures, including the enhancements mentioned above, emphasizes the collective strength of our board and meaningfully addresses the proposal.’

In a letter to the agency, Kathryn Diaz, general counsel with Stringer’s office, notes that NYCERS first offered the proposal at ExxonMobil’s 2018 AGM, where it received 16.5 percent of the vote. After the meeting and dialogue between NYCERS and the company, ExxonMobil agreed to make some additional disclosures as to the qualifications of director nominees, she adds.

‘What is missing, however, from these disclosures… is the one item the proposal specifically requests – namely, a matrix,’ she says, including with her letter examples of best practices from other companies’ proxies. ‘[W]e respectfully submit that the company has not done enough to warrant a conclusion that it has substantially implemented the proposal.’

In a letter to the SEC on behalf of ExxonMobil, Davis Polk & Wardwell partner Louis Goldberg responds to Diaz’s letter by stating: ‘Consistent with the proponent letter, the company will provide information about the composition of the board, including the board’s qualifications and experiences, in a matrix representing board information in the aggregate.

‘The company’s intended disclosure about the directors’ individual qualifications and experiences and additional information, aligned with the aggregated matrix information showing the overall composition of the board, together provide investors the necessary information to understand how the individual members contribute to that aggregate.’

The SEC staff are not persuaded, however. ‘We do not concur in your view that the company may exclude the proposal under Rule 14a-8(i)(10) because we are unable to conclude that the company’s public disclosure substantially implements the proposal,’ writes Courtney Haseley, special counsel with the division of corporation finance.

‘In particular, we note that your aggregated matrices do not provide investors with a means to evaluate an individual nominee’s attributes for the purpose of making informed voting decisions, which appears to be the essential objective of the proposal.’

A spokesperson for the office of the comptroller did not have an immediate comment. A request for comment from ExxonMobil was not returned immediately.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...