Exxon and Meta votes highlight more investor unease over shareholder rights erosion

Shareholder votes at ExxonMobil and Meta this week have underlined investor concerns about companies adopting rules and voting arrangements that may limit their ability to challenge boards and management.

Speaking to IPE, Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics, said the votes at the companies’ annual general meetings yesterday pointed to concern over the practical levers available to shareholders when they disagree with management.

At Exxon, shareholders approved the company’s plan to reincorporate in Texas, with 28.7% of votes cast against. A separate shareholder proposal asking the company to expand its retail voting programme to include more options, including votes against management, received 23.5% support. The current programme only allows retail investors, if they opt in and unless they opt out, to follow management recommendations at shareholder meetings on an ongoing basis. 

The shareholder resolution was put forward by New York City Comptroller Mark Levine on behalf of the New York City Police Pension Fund. Exxon argued that shareholders should vote against it, saying the proposal was “unworkable and illegal”.

Morningstar’s Stewart said the level of dissent at Exxon was “meaningful”, even though both votes went in management’s favour.

“One in five of the shareholders who voted have issues with what are essentially fundamental governance and shareholder rights issues,” he said. “There’s clearly a message being sent there.”

He added that investor concern around the Texas move could centre on whether recent changes to state business law there could reduce shareholder rights compared with Exxon’s incorporation in New Jersey.

Proxy advisers ISS and Glass Lewis opposed the Texas reincorporation over concerns it could weaken shareholder rights. Exxon said the move aligned its legal home with its operational base and would not reduce shareholder protections.

Exxon previously attempted to use the US courts to block a shareholder proposal in 2024, when it sued Arjuna Capital and Follow This in a Texas federal court to prevent them from putting a climate-related proposalon the proxy ballot. The case was later dismissed.

Stewart said institutional investors had become “very sensitive to the idea that their rights are being eroded”. He said the main concerns related to “the ability to file shareholder proposals and have them voted”, as well as shareholders’ ability to pursue court-based litigation in disputes with management.

On the retail voting proposal, Stewart said the concern was that allowing retail shareholders to delegate voting authority to management could be seen as favourable to the company.

Pre-declaring its intention to vote in favour of the shareholder resolution on the retail voting system, Allianz Global Investors last week said that as currently structured, the programme risked weakening the independent exercise of shareholder voting rights, be it by institutional shareholders or retail shareholders who did not opt in.

Without changes to it, the programme was “a setback for shareholder democracy”, the asset manager said. 

Meta AGM

At Meta, a shareholder proposal calling for the company to adopt a recapitalisation plan so each share has one vote received around 26-27% support, according to early reports, but failed because of the company’s voting arrangements.

The current structure gives Class B shares, largely held by chief executive Mark Zuckerberg, 10 votes per share, compared with one vote for ordinary Class A shares.

Stewart said the result was significant because Meta’s dual-class structure obscures the level of support among independent shareholders.

“It isn’t possible to get majority support for a shareholder resolution at Meta,” he said. “But it is one of the most consistently supported themes when it comes to shareholder proposals from a broad range of institutional shareholders.”

Stewart said open-ended dual-class structures, particularly those without sunset clauses, were seen by investors as “a risk to effective corporate governance” and “a hindrance to the exercise of shareholder rights”.

Drawing a comparison between Meta and SpaceX, he went on to note: “Notably, SpaceX has chosen to go public with its dual-class share structure in its upcoming IPO – one item on a list of governance concerns shareholders have noted at the company. Our latest research shows that shareholder rights are a core concern for institutional asset owners, so it’s likely this could become a flashpoint at SpaceX’s first public shareholder meeting.”