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May 31, 2024

The week in GRC: ISS and Glass Lewis urge vote against Musk’s pay package and ExxonMobil directors re-elected despite opposition

This week’s governance, compliance and risk-management stories from around the web

The Guardian reported that, according to polling, a majority of US voters support communities taking major oil companies to court for allegedly deceiving the public about the climate crisis, and almost half would back an even more aggressive legal strategy of filing criminal charges. The 40 existing US lawsuits against major oil companies, filed by cities and states, are based on civil charges such as tort law and racketeering protections. Last year, however, consumer advocacy non-profit Public Citizen proposed also filing criminal charges – most notably, homicide – against the companies.

The argument is that the oil industry knew pollution from the use of fossil fuels could have lethal consequences but fought to delay climate action, which could be considered grounds for charges of reckless or negligent homicide. Asked for comment about the legal theory last year, the American Petroleum Institute said ‘the industry has achieved its goal of providing affordable, reliable American energy to US consumers while substantially reducing emissions and our environmental footprint.’

– According to Reuters (paywall), Glass Lewis said it has urged Tesla shareholders to reject a $56 bn pay package for CEO Elon Musk. The report cited reasons including the ‘excessive size’ of the pay deal, the dilutive effect it will have and the concentration of ownership. It also mentioned Musk’s ‘slate of extraordinarily time-consuming projects’, which have expanded with his purchase of Twitter, now known as X.

The pay package was proposed by Tesla’s board of directors. It has no salary or cash bonus components and sets rewards based on Tesla’s market value rising to as much as $650 bn over the next 10 years. In January, Judge Kathaleen McCormick of Delaware’s Court of Chancery voided the original pay package. Musk then sought to move Tesla’s state of incorporation to Texas from Delaware.

Tesla has urged shareholders to reaffirm their approval of the compensation. In an interview this month, Tesla’s board chair Robyn Denholm told the Financial Times that Musk deserves the pay package because the company hit ambitious targets for revenue and its stock price.

– Elliott Investment Management made a $2.5 bn investment in Texas Instruments and is urging the company to improve its free cash flow by adopting a less rigid plan for capital expenditures, CNBC reported. In a letter viewed by CNBC, Elliott proposes that Texas Instruments introduce a ‘dynamic capacity-management strategy’ that would allow the company to achieve free cash flow of as much as $9 a share by 2026.

The letter’s signatories are Jesse Cohn, who runs activism at Elliott, and senior portfolio manager Jason Genrich. They believe the key question for the company’s management and board is ‘not whether [Texas Instruments] has a thoughtful long-term strategy but rather: is the fixed magnitude and pace of its capacity buildout appropriate given the expected level of excess capacity?’

A spokesperson for Elliott declined to comment on the letter. According to CNBC, Texas Instruments CEO Haviv Ilan signaled that the company would be open to a ‘constructive dialogue’ with Elliott and pointed to fresh financial metrics that aligned with the hedge fund firm’s proposals.

Reuters reported that JPMorgan Chase CEO Jamie Dimon said the split between chair and CEO roles in the bank are overstated, adding that he and the board will do the right thing on succession. JPMorgan Chase plans to split its chair and CEO roles when Dimon eventually steps down, it said in a regulatory filing earlier this year.

Dimon said the bank has an extraordinary management team and reiterated that the timeline is less than five years, adding that it could be anywhere from 4.5 years to 2.5 years and it is up to the board to make that decision. JPMorgan Chase’s board recently identified Jennifer Piepszak and Troy Rohrbaugh, co-CEOs of its commercial and investment bank, as candidates for the top job.

Reuters reported that ExxonMobil shareholders voted to re-elect chair Darren Woods and lead director Joseph Hooley by wide margins, despite activist shareholder opposition. The two had faced a ‘vote no’ campaign by shareholder rights activists over the company’s lawsuit against climate-focused investors who had filed, then withdrawn, a proposal for the AGM.

ExxonMobil said its 12 director nominees were all re-elected with between 87 percent and 98 percent support and average support of 95 percent, just below last year’s 96 percent average. The outcome ‘signals a belief that we are on the right track by overwhelmingly re-electing our directors,’ the company said in a statement.

The campaign amounted to a test of whether top institutional investors defend the small shareholders whose resolutions have put topics such as the environment and workforce diversity on the ballots at many AGMs. Independent corporate governance consultant Francis Byrd said top asset management firms that have the largest batches of ExxonMobil shares did not seem to see any threat posed by its suit as strong enough to justify critical votes.

– The WSJ reported that Tesla issued a forceful rebuttal to Glass Lewis after the proxy adviser advised shareholders to vote against CEO Elon Musk’s multibillion-dollar pay package. In a letter, Tesla wrote that the proxy firm ‘omits key considerations, uses faulty logic and relies on speculation and hypotheticals.’ It reiterated that shareholders should vote next month for Musk’s compensation package and approve the company’s plan to incorporate in Texas. ‘Tesla believes it should abide by its commitment to Elon as Elon delivered on this commitment to Tesla,’ the company wrote in its letter. ‘A deal is a deal. That is the fair and ethical thing to do.’

– The WSJ also reported that ISS joined Glass Lewis in urging Tesla shareholders to vote against Musk’s pay package. In a report, ISS said the package was excessive and ‘outsized from the start’. The proxy adviser said it was concerned that Tesla’s board was only offering shareholders an all-or-nothing option for the pay package. ‘Some investors may find the board’s argument compelling, that it would be unfair for CEO Musk not to receive the award,’ ISS said. ‘[But] the concerns raised, both back in 2018 and in the interim, have not been sufficiently mitigated.’

Tesla didn’t immediately return a WSJ request for comment on Friday.

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...