States and investors are waking up to how activists have been hijacking companies through proxy votes.
States and investors are waking up to how activists have been hijacking companies through proxy votes.
L ast week’s shareholder vote at ExxonMobil delivered a resounding message: Investors are done letting unaccountable proxy advisors sacrifice their returns on the altar of political activism. Shareholders voted overwhelmingly — a 71 percent supermajority — to reincorporate the company in Texas, decisively rejecting recommendations from advisory firms ISS and Glass Lewis that the move would somehow harm their interests.
The vote wasn’t close because the choice wasn’t complicated. Texas offers a superior legal and regulatory framework for maximizing shareholder value, and ExxonMobil’s board made the case on exactly those terms. What made this controversial wasn’t the merits, but the fact that two unregulated firms with outsized influence over trillions in retirement assets decided to treat a routine governance proposal as a referendum on energy policy.
ExxonMobil has been legally domiciled in New Jersey since 1882, but its operations show where it really calls home. The company employs 75 percent of its U.S. workforce in Texas, houses its global headquarters just north of Houston, and concentrates the largest share of its U.S. capital investments in the state. Chairman and CEO Darren Woods explained that Texas has cultivated a policy and regulatory environment that enables companies to focus on creating shareholder value rather than navigating unnecessary red tape and political interference.
Recent legislative sessions modernized the Texas Business Organizations Code, established the specialized Texas Business Court for commercial litigation, and created the Fifteenth Court of Appeals for business disputes. Tesla, SpaceX, Coinbase, and Dell have already reincorporated in Texas for precisely these reasons. The board determined that reincorporation would not affect operations, strategy, capital allocation, dividends, environmental commitments, or employee locations — only the legal framework governing the company.
As a duopoly in proxy advisory services, ISS and Glass Lewis have become influential gatekeepers in corporate governance, routinely supporting shareholder proposals that conflict with the core United States fiduciary standard of maximizing economic value for shareholders. They have supported climate proposals that companies say are not measurable, racial-equity audits of questionable legality, and shareholder resolutions demanding that retirement plans subordinate returns to environmental goals.
The settlement that investment management firm Vanguard agreed to earlier this year with Texas and twelve other states should have put the issue to bed: $29.5 million paid and enforceable restrictions on using retirement holdings to advance climate and ESG agendas affirmed that pension assets exist to fund pensions, not politics.
Activist investors’ response to the ExxonMobil vote followed a familiar pattern: warnings about shareholder rights, accompanied by no economic analysis demonstrating how the proposal would harm shareholder value.
Before the vote, I joined a coalition of state financial officers in writing to major institutional investors, urging them to evaluate the proposal on its governance merits and follow their own published stewardship principles, which emphasize long-term value and deference to board recommendations supported by sound business rationale. By those standards, the case for supporting the proposal was compelling. The company had been transparent about what would and wouldn’t change, the board’s recommendation was unanimous, and the economic rationale was straightforward.
The only argument against was that moving to Texas somehow signaled retreat from progressive values — exactly the kind of political litmus test that has nothing to do with fiduciary duty and everything to do with the ideological capture of institutional investing.
Activists continue to flood proxy ballots with hundreds of resolutions designed to force companies to sacrifice competitiveness in favor of political posturing. That trend was fueled in part by SEC policies that made it easier for activist proposals to reach corporate ballots. Environmental proposals have increased 51 percent since 2021; social-issue proposals are up 20 percent. Many receive support from proxy advisors and asset managers who have abandoned their duty of loyalty and care to deliver returns for the workers and retirees whose futures depend on them.
As fiduciaries for public pension beneficiaries and participants in 529 plans, state financial officers will continue to scrutinize stewardship reports and voting rationales, and we will continue to demand accountability. The ExxonMobil vote proves that shareholders can still prevail when they insist their money be managed in accordance with their economic interests, not someone else’s political agenda. It also serves as a reminder that corporate governance works best when boards are free to make decisions based on sound business judgment rather than pressure from political activists.