A Tiger in the Tank: Exxon Sues Investors

In June 2024, investors were trying to make sense of ExxonMobil’s (Exxon) lawsuit against two impact investors, Arjuna Capital (Arjuna) and Follow This, that had just been dismissed by the U.S. District Court of Northern Texas. Exxon’s suit challenged the rights of two investors to attempt to have influence on company issues that they deemed to be important. The suit offered differing perspectives on the exercise of fiduciary duty—Exxon’s view that the proposal made by the two firms was inconsistent with generating shareholder value, and that it created unnecessary distraction and cost, versus the investors’ views that long-term environmental issues were fundamentally connected to shareholder value.

While Exxon had a valid regulatory claim to exclude the proposal from its proxy statement and therefore being voted upon, the company made the unprecedented decision to sue the two firms in court. Two of the world’s largest institutional investors, the California Public Employees’ Retirement System and Norges Bank Investment Management, publicly condemned Exxon’s lawsuit and supported Arjuna and Follow This.

While the court ultimately dismissed the lawsuit because Arjuna withdrew its proposal and Follow This was deemed to be outside the court’s reach, the suit raised fundamental questions regarding what issues were appropriate for shareholders to raise with management, what constitutes a shareholder for purposes of engaging with management and other shareholders, who decides what constitutes shareholder value and on what basis, and the nature of the management/shareholder relationship.