June 29, 2015 / 5:05 AM / 4 years ago

Oil companies played hardball in bid to defeat climate outsiders

HOUSTON (Reuters) - Petty legal filings. Diversionary ballot measures. Counting abstentions as no votes. These are just some of the tactics U.S. oil companies used this spring to quash efforts by investors to win the right to nominate climate experts for board seats.

A Chevron gas station sign is seen in Del Mar, California, April 25, 2013. REUTERS/Mike Blake

Led by New York City Comptroller Scott Stringer and proposed at 75 U.S. companies in various industries this year, the so-called proxy access measure would give investor groups who own 3 percent of a company for more than three years the right to nominate directors. At the 19 oil and gas companies targeted, the aim was to demand more accountability on global warming.

While the non-binding measure passed at two-thirds of all the companies targeted, and at 15 of the 19 energy companies, some took unusual steps to block it. Oilfield services provider Nabors Industries Ltd, for example, counted non-votes from brokers as votes against the proposal. Still, the measure passed at Nabors, which didn’t respond to requests for comment.

Shale oil company Pioneer Natural Resources Co filed a last-minute counterproposal calling for a higher ownership threshold of 5 percent, which institutional investors say is much harder to obtain. Pioneer said it gave shareholders extra time to vote. Stringer’s proposal failed.

Exxon Mobil Corp and Chevron Corp tried to block the proposal by arguing the New York City pension funds behind it had not shown proof of owning their shares for a full year. The proposal passed at Chevron and narrowly failed at Exxon.

The 15 victories at energy companies show that investors think the companies must do more to address climate change risks - which range from shortages of water needed for drilling to hefty carbon taxes governments could impose on fossil fuel producers, fund managers said.

“ExxonMobil received this (proxy access) proposal due to its exposure to risk related to climate change,” James Andrus, a representative from Calpers, told Exxon’s annual meeting.

The outcome also shows companies miscalculated the groundswell of support for more climate accountability ahead of the U.N. conference on global warming in December, fund managers said.

A simple majority was needed for the non-binding proposal to pass. Of the 19 targeted energy companies, all opposed the measure, except for shale oil producers Apache Corp and Whiting Petroleum Corp.. The other two companies where the measure failed were Cabot Oil and Gas Corp and Noble Energy Inc.


Stringer characterized Chevron and Exxon’s maneuvers as “petty legal actions” in a statement made in February. The U.S. Securities and Exchange Commission sided with New York.

Because the measures are non-binding, corporate boards can either ignore the results of the votes or decide to change their bylaws.

While most companies say their boards’ nominating committees are best suited to pick nominees for director, energy companies in particular likely do not want the type of board candidates that labor pension funds might promote, said Erik Gordon, clinical assistant professor at the University of Michigan’s Ross School of Business.

“Companies fear that the nominees will be single issue candidates who focus solely on a labor or environmental issue such as executive compensation or global warming,” said Gordon. “In fact, the Comptroller’s office has targeted companies that it feels have done too little to address climate change, and that frightens energy companies.”

Steven Mueller, chief executive officer of Southwestern Energy Co, told Reuters that his board opposed the proxy access proposal because Southwestern was unfairly targeted because it produces oil and natural gas. The proposal passed at Southwestern.

“We didn’t believe it was a governance issue,” said Mueller, who said Southwestern’s board is working on how to respond to the proposal.

Reporting by Anna Driver; editing by Terry Wade and John Pickering.

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