Responsible Investor

Exxon and HSBC: hollow victories on pay and governance

Why important AGMs this week at ExxonMobil and HSBC will end up asking more questions than answers.

Two of the most important battles in corporate governance will be played out to a larger than usual audience this week. The publicity could be seen as a victory of sorts for supporters of shareholder responsibility and greater public scrutiny as the most potent vetoes against corporate profligacy using other people’s money. Unfortunately both spectacles look like being rather hollow. First up is today’s ExxonMobil’s AGM on (Wednesday May 28th) where shareholders including corporate governance campaigner Bob Monks and the Rockefeller family – scions of John D. Rockefeller, founder of Standard Oil, Exxon’s forerunner – will prolong a seemingly never-ending quest to persuade the US oil giant to split the role of chairman and chief executive. They argue that dividing Exxon chairman and CEO Rex Tillerson’s role would bring better governance oversight, notably in encouraging the company to adopt more enlightened policies on sustainability. Ethical arguments aside, they also argue that Exxon is failing to position itself for peak oil scenarios and the increasing prospect of renewable energy markets. Significantly, the vote is being hailed as a harbinger of split chairman/chief exec rules in the US to follow what is considered as best governance practice in European markets. The resolution, supported by corporate governance proxy voting agencies, including RiskMetrics Group, the influential US group, looks like topping the 40% it got last year and may even clear the

50% level. Some of Europe’s largest institutional investors have publicly backed it, including F&C Asset Management, the Cooperative Insurance Society, Morley Fund Management and the West Midlands Pension Fund. Nonetheless, should it pass, Exxon will probably start ‘ignoring the shareholder vote seriously’, as Bob Monks has joked in these pages, because of the non-binding nature of the ballot. Exxon has consistently funded lobby groups to rubbish climate change research. It is unlikely to change its tune now, particularly while oil prices boom, rendering more environmentally unfriendly oil extraction such as tar sands in Canada and Nigeria commercially viable. It is also questionable whether the chairman/CEO split debate is really that important. After all, how divided are chairman and chief executive really likely to be on corporate policy?
At a recent corporate governance conference in Paris, Jay Eisenhofer, founder and managing partner of Grant & Eisenhofer, the US securities class action firm, made the point that it is much more important to know the calibre and independence of the entire board. Another panellist suggested all directors should undergo a recruitment interview by investors, pointing out that the information shareholders were relying on at the moment amounted to little more than a ‘corporate-created CV’ for their most important representatives. Both proposals make sense. The week’s second governance ding-dong will come

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