The Garrulous Jay – Engine/Oil

Engine No.1: the name may not be familiar to you, but this small activist fund manager with a quirky name is at the epicentre of what could be a watershed moment for the investment industry. All will become clear on the 26th May when ExxonMobil’s shareholders vote on the composition of their Board.

Engine No.1 sits at the intersection between shareholder activism and the seemingly unstoppable rise of ESG-focused investing. As their website states Engine No.1 “believe shareholder and stakeholder interests converge, and companies that invest in their stakeholders are better, stronger companies as a result.”

In their crosshairs is an oil and gas behemoth worth $249bn, but one which they argue has been poorly run for a number of years, with an unhealthy fixation on its traditional strengths and too little focus on the changing energy landscape.

At the heart of their four-point plan to “Reenergize ExxonMobil” is the proposal to appoint four new Directors to the company’s Board that will help is to “address {an} array of industry challenges, and to bring real change.” A number of influential US State Pension funds have already come out in support of Engine No.1’s nominations, and several other big investment institutions are keeping their cards close to their chests.

There are at least two important messages to be taken from this David vs. Goliath contest.

First, if Engine No.1’s nominees win their Board seats it will send a clear signal that no management team, however large the company, is immune from the twin pressures of well supported activist investors and the profound shift towards a greater ESG focus among shareholders. This could have ramifications that go well beyond ExxonMobil’s boardroom in Irving, Texas.

Secondly, every business regardless of its size and whether or not it is publicly traded, should adopt an ‘activist’ outlook to its operations. Management should take an ‘outsider looking in’ approach to their company and ask: if someone else was running this business what might they do differently?

The unifying lesson connecting these two messages is that companies can either effect change themselves or have change thrust upon them, and one approach tends to be a little less comfortable than the other for the incumbent management.

Bring on the 26th May!