← Shareholder Primacy
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- [00:03]
A
Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal worlds intersect and collide in real life. We have returned, Ann and me, Ann and I. Ann is a law professor. Ann Lipton is a law professor at the University of Colorado who teaches and researches securities and business law. Why are you shaking your head there, Ann?
- [00:29]
B
I don't shake my head. That is indeed what I do.
- [00:32]
A
Yeah, it is. She holds up the legal end of the podcast.
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B
And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.
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A
What shall we talk about today? Shall we talk about Exxon Mobil? How's that?
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B
Let's talk about ExxonMobil.
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A
Let's talk about. I mean, there's a lot to uncover and in particular, they've been in the news lately because of their choice of domicile and they have requested shareholders approve a move from its current domicile to Texas. And so we will cover that.
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B
Yep. And we'll get a status update on an increasingly long list of proxy contests brewing for 2026. And also, yeah, there's some interesting ones
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A
kind of cooking there. So let's do that. All right, Go ahead, Anne. Yeah.
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B
And I'm just once again reminding everyone of the mailbag. You can email us at shareholderPrimeCrimeFloat LLC.
- [01:29]
A
Great, let's do that. Let's hear from people. It's been a little bit since we gotten some reader mail or listener. Listener mail.
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B
Yeah, it actually has been.
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A
Let's talk for a little while about ExxonMobil, which has continues to stir things up. It's of course, the company that, you know, years ago was the subject of a notorious proxy contest where engine number one prevailed in putting some environmentalists on its board, Much to everybody's at the time, legitimate surprise. I think that may have motivated.
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B
Still there.
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A
Yeah, some are still there, but they're a little co. We think they're co opted. But anyway.
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B
Co opted.
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A
Right. They also sued shareholders, sued its own, you know, just little teeny kind of ESG proponents over precatory proposals and got
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B
in which we did a whole podcast about a while back.
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A
Correct. And then most recently before this or last week's developments, they're the ones who design and are implementing a novel and arguably maybe a little unfair retail voting program where they want to allow retail voters to the retail shareholders to vote for their stuff, but not other stuff.
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B
We had a whole podcast about that too.
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A
Right. Yeah, we did talk about that. So before we kind of plunge into the most recent development, I have something I wanted to ask is would you prefer to talk about ExxonMobil or Tesla today?
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B
Today we're.
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A
Or I mean just overall. Overall. Which is, which is more.
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B
Which is more. Honestly, I'm getting a little bored with Tesla. Like enough with the Tesla.
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A
I was kind of wondering, so Tesla. So is Exxon Mobil kind of becoming our kind of most recent like company of the month?
- [03:21]
B
Well, yeah, I mean, it's just that. It's just they're like one thing after another designed to be hostile to shareholders. I don't know if it's because they're scarred from the engine number one thing or whatever, but I mean like we're like this is number three podcast on Exxon design to doing the last few months Holder voice. So they're really, they're, they're really taking this on as much as possible.
- [03:43]
A
Yeah.
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B
So you know, we have. The retail voting program was very much like you can have standing instructions to vote only for Exxon people and nothing else.
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A
Right. So, so I just, it was kind of interesting because, you know, for a long time we were continually returning to all the trials and tribulations at Tesla, I'm sure. And actually they haven't. I expect Tesla is going to be back on our radar pretty soon once SpaceX and so forth start to do some really fun stuff.
- [04:11]
B
But it's not just that. They still have pending cases in Delaware, so.
- [04:14]
A
Yeah, absolutely. For now all your students and all my friends are going to start asking about Exxon Mobil. So let's cover that. So Exxon Mobil announced last week that it was. That it wants to redomicile to Texas where it has a lot of operation, as you'd expect for the largest oil industry headquarters company in the US from. And this I kind of needed to be reminded of. They want to re domicile not from Delaware, but from New Jersey where it was, you know, been domiciled since the days of its founding when it was Standard Oil.
- [04:56]
B
Standard Oil, Yeah, exactly. I mean, because this is the thing like, like for those like history buffs about this, New Jersey in the late 1800s was the first state to say we are going to make an effort to attract incorporations.
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A
Oh, interesting. So that was the first flight to the flight to the bottom or whatever.
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B
Yeah, exactly. New Jersey was the first one. They called it, they called it the trader state because it was the first state. Oh really? Because it was the first state to say we're going to loosen Our corporate law, we're going to make it less regulatory. We're going to allow for the creation of holding companies. We're going to let corporations hold shares in other corporations with a lot of other prohibited at the time. And we're going to attract out of state incorporations that way. So of course Standard Oil, the Standard Oil Trust went to New Jersey as did a lot of other companies. And then eventually. Yeah, and then eventually Delaware kind of like took the crown. It basically literally copied New Jersey's law. It said New Jersey law. That's our law.
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A
They're like adjacent. They're like. You just have to like go across this river from Camden to wherever, Dover, I don't know where.
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B
Right there, I don't know. But yeah. So Delaware literally copied New Jersey law. They actually passed a law that said New Jersey precedent, their court precedents are Delaware precedents. And then they kind of took off with it and ran with it. And New Jersey fell behind historically. But Exxon, which is formerly Standard Oil, remained there from 1899 and it's been there ever since. So this proposal to move out of New Jersey to Texas has a certain like historic feel to it. Like maybe the last of like they're
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A
kind of updating finally. They're a little, they were a few decades behind, but they're finally there. So before when you said New Jersey in the 1890s, was it.
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B
Well, it was the late 1800s that they did this and I think Standard Oil Incorporated.
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A
Yeah, they were starting to get organized back then. You said it was the trader state. Do you mean trader like trades or trade?
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B
Orlando Trader as in like betrayer.
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A
Oh, betrayer.
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B
Because it's the one that like decided to make its corporate. To initiate this race to make its corporate law loose and non regulatory. So does to pull charters from other states.
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A
Oh, wow. So. So Exxon's just been there ever since and filed its charter and bylaws and so forth under New Jersey. There's some others.
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B
Yeah.
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A
That I've, I'm sure there are. I've not worked, not within my memory, you know, because one of the things I do early on, believe it or not, is go read bylaws of companies I'm looking at and a lot of Delaware recently in North Carolina, a couple Illinois. Of course I've, you know, focused on it, but I've not encountered New Jersey law very, very intently. Is there anything other than based on what you just said, which is New Jersey, Delaware kind of copied New Jersey, anything distinctive about like the New Jersey corporate legal? Regulatory Environment.
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B
No, at this point, New Jersey looks a lot like Delaware's law, especially pre SB21. Delaware, like, you know, we all, we said a zillion times that Delaware made it easier to cleanse deals. New Jersey looks a lot like Delaware, especially before that change. But Texas is what's different. So Texas, as we've said before, recently revamped its corporate code to give a lot more power to managers and, and to be a lot less friendly to shareholders. And I just have to say Texas, Exxon, they call this pro business. Everyone keeps calling these pro business moves. That's, that's not accurate. They're pro manager. They're pro manager.
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A
Whether they're pro insider, pro company leadership.
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B
Exactly. Whether they're pro business in the sense of actually making companies more valuable or more profitable, that really depends on a contested view of what rights shareholders should actually have. So there are a lot, but it's definitely as more pro insider. So there are a lot of little differences between the two states, but there's some specific things that are worth pointing out. So first, Texas allows companies to choose, either in their bylaws or charters, they can choose to limit derivative lawsuits to shareholders who collectively hold 3% of the stock. Texas allows companies to choose, and their charters are bylaws, to limit shareholder proposals to shareholders who own at least $1 million worth of stock or 3% of the stock. And in Exxon's case, 3% is about $20 billion last time I checked.
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A
Yeah, never mind. You're never going to get a shareholder proposal there.
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B
Well, actually, proposal, I think they can't. They have to have at least a million dollars or something.
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A
But still, most of these shareholders don't even have that.
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B
And Exxon claims, by the way, it claims that even in New Jersey, it can adopt the same limit on shareholder proposals, but that's never been tested. If it tried, it would definitely be sued. So there are maybe some differences in inspection rights. Texas, under its new law, flatly bars shareholders from using inspection rights to explore potential litigation.
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A
When you. Sorry, stop right there. Inspection rights means books and records demands.
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B
Right, Got it.
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A
Okay, got it.
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Texas flatly bars shareholders from getting books and records if they're doing it to explore litigation. And that's really different from like say, Delaware, where.
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A
Delaware, you could. It's a requirement that you have to take.
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B
They practically counsel in favor of it. But yeah, but Delaware, this has been really critical that shareholders get this internal documents and that helps them draft the complaint. But Texas will not allow you to get access if you're using it. For litigation. And Texas also just flatly bars access to emails, text, things like that. In New Jersey you just have to have a proper purpose. You can presumably get books and records for litigation. But I think under New Jersey law, I don't think you can get much more than financial records records in board meeting minutes. It doesn't look like they're.
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A
So that, that's very similar to what my experience at least with Delaware.
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B
Well, well, Delaware you can get a lot more.
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A
Get a little more.
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B
But then SB21 makes it harder. So it's a little hard to tell. But, but certainly New Jersey, there's no bar to getting internal documents of some kind for litigation. In Texas, it's barred. And then, and this is the big one, Texas, unlike New Jersey, flatly protects officers and directors from any liability except for fraud, intentional misconduct or knowing violation of law. So that's.
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A
So negligence is protected.
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B
Negligence would be protected anyway. But like just conflict transactions. So like. So as I read the law, this is the really interesting thing about Texas. As I read the law, it's not just shareholder initiated lawsuits. If the board wanted to sue an officer, they couldn't under Texas law unless they showed fraud, intentional misconduct or knowing violation of law. New Jersey is more like Delaware. Shareholders can sue over a conflict of interest that isn't cleansed.
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A
Interesting.
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B
But here's the thing. So with Texas, those minimum holding requirements for derivative actions and for shareholder proposals, those are opt in companies don't have to.
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A
Oh, you have to actually affirmatively like put it in your bylaws.
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B
Put it in your bylaws or put it in your charter. And Exxon says in its proxy statement on this move, it says it's decided not to opt into those provisions. It's not going to institute those minimum holding requirements for proposals and derivative lawsuits. But, but it has made no commitment to that. Both of those things. Limits on lawsuits and limits on proposals, they can be adopted unilaterally by the board at any time.
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A
Right. You could just. The board can amend the bylaws whenever they want for whatever purpose. Exactly right.
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B
So Exxon is making no promises that it won't at some future date unilaterally decide to institute those limits. So it's saying right now we have chosen not to institute those limits, asking shareholders to vote in favor of the movement, but it's making no promises that once the move happens, it won't change its mind and say, whoops, now we're here.
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A
I guess, I mean, and I don't know if, even if they were to make that promise like today, I don't know. How would people hold them to that?
- [12:35]
B
They could. They could. Other companies have done this. So a company called ArcBest, which is also, like, based in Texas, it also just redomesticated to Texas, and when it did, it actually put a commitment in its charter not to adopt the minimum holding requirements for Georgia.
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A
Okay, so they actually put it in the charter, which is subject to shareholder approval.
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B
Exactly. Exxon's not doing anything like that. And there's another example. Fidelity National Financial, it actually wanted to move from Delaware to Nevada. Now, Nevada, like Texas says there's no liability except for, like, fraud, intentional misconduct, that kind of thing, much higher than Delaware. But Fidelity National Financial, they tried to get a shareholder vote in favor of the move, and shareholders refused to vote because they didn't want to lose those protections. So once again, Fidelity put National Financial. Not Fidelity. Fidelity National.
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A
This isn't Fidelity Boston. This isn't the Johnsons. Right, okay.
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B
Yeah. Fidelity National Financial actually put in their charter that they were going to waive the protections of Nevada law so that they. The no liability, except for fraud, intentional misconduct, whatever. They put in their charter that they would have the same standards as Delaware, essentially. The. They could be liable for lack of good faith and for lack of loyalty, conflict transactions. So put that right in its charter. But Exxon is not waiving anything. It's not waiving those extra protections against any liability, except for knowing misconduct, whatever. And it's certainly not promising that it won't later adopt the holding requirements for proposals and derivative lawsuits.
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A
All right, so just to recap for a SEC least, so I can. That there's. By making this move, and I want to actually talk about it a little bit, because the move, if you kind of set aside some of the ways in which it's really bad for shareholders, it makes a modicum of sense, which we can talk about in a little while. It's going to basically allow Exxon to limit shareholder lawsuits or derivative lawsuits in significant ways if it wants to, and also limit shareholder proposals, which are two things. Well, shareholder proposals, for whatever reason that I still do not completely understand, really annoys Exxon.
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B
They would annoy everybody. I mean, the latest Chubb.
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A
That's right, it's being sued. Chubb declined service or something. On some.
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B
Yeah, they declined service. They're being sued by one of their shareholders for. Not for. As you said, for not including a proposal on the ballot. And they're claiming they didn't receive proper service.
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A
Yeah. Right. So anyway, but for whatever reason, again, that still I don't fully appreciate is these shareholder proposals which I would think to most explicitly a mammoth company like Exxon would be just kind of a nuisance is really something.
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B
They're revealed preferences.
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A
They really, they do don't like it and I just don't get it. And then also shareholder lawsuits and then there's a, you know, cousins to that, for example. So the books and records demands that would support a shareholder lawsuit are being limited. And there's, I think you mentioned something about officer and director exculpation, but I think that's right.
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B
But yeah, they can't be liable. Like you can't file the lawsuit if they choose to opt in. You won't be able to file the lawsuit unless you hold a derivative lawsuit, unless you're holding $20 billion worth of stock. But, but also the liability standard for would be that you'd have that any shareholder would have to show intentional misconduct.
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A
Right. Yes. Really, really high, high bar for showing wrongdoing.
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B
Yeah. As opposed to what we usually talk about, which is a conflict of interest.
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A
Right, exactly. All right, so now this is. Exxon has expressed it would like to do this. It can't just do it itself though. So what did it, what did it do? It put it on the AGM agenda for this year.
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B
For this year. So shareholders have to vote in favor
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A
and it's what votes required. Do you remember? I don't, I don't.
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B
It's got majority of the votes cast. I believe. I haven't double checked it, but I'm pretty sure.
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A
Well this, oh, this is, this is. Yeah. So this is a majority of all the votes. They don't believe Exxon would have a super majority.
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B
No, no, no, I'm pretty sure. I mean I don't have it in front of me, but I'm reasonably sure it's right.
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A
Because they're, because they're amending the charter there.
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B
I think legally it's a merger because there isn't a. So like I think they're legally merging
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A
into a company, Texas entity or something like that.
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B
But so the interesting thing here is that Exxon doesn't have a controlling shareholder, so.
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A
Absolutely not.
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B
Right. A lot of these moves we've seen controlling shareholders do it unilaterally. We saw Tesla, which is his own special case. Exxon doesn't have a controlling shareholder. So that means that in order to get the votes, which I'm pretty sure is majority of the votes outstanding, shares outstanding, is it's going to have to convince the big normie, asset managers like BlackRock and Vanguard and State street. Right. Now, they voted because those are the ones who hold, you know, big chunk of stock. Now obviously they voted in favor when Tesla proposed moving to Texas, but remember at that time, Texas hadn't changed its law yet. At that time, Texas's law was pretty similar to Delaware's. It was even a whole expert report on how similar the laws were.
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A
Right.
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B
So. So if BlackRock and Vanguard and State street vote in favor of this now, they're really voting to reduce shareholder rights kind of significantly. And Vanguard, I mean, like I checked, Vanguard's proxy voting policy says it will oppose changes that do not safeguard shareholder rights. State street says it values shareholder rights. BlackRocket's a little more non committal, a
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A
little more wishy washy. Right?
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B
Yeah. It says it'll evaluate if a reincorporation reduces shareholder rights, but it might still vote in favor if the overall benefits outweigh the costs. So it's really unclear like why they would vote in favor other than we also know that the big asset managers are under a lot of pressure to prove that they support fossil fuels. I mean, they've been accused a lot. They've been sued for being too woke by supporting climate change resolutions. BlackRock and State street are right now fighting a lawsuit in Texas. Ken Paxton and a bunch of other red states, Ken Paxton, the AG of Texas and a bunch of other red states sued BlackRock, Vanguard and state street alleging that their climate change resolutions were essentially a conspiracy.
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A
Oh, it's a collusion. It was the antitrust argument and Vanguard settled out.
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B
And as far as I know, blackrock and State street are still litigating. So I'm concerned they may feel a lot of political pressure to support this move, regardless of their actual sense of whether it's good for shareholders.
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A
All right, go ahead. Sorry.
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B
You don't think they're gonna feel the. Well, anyway, I assume Exxon wouldn't have proposed this unless they already kind felt out.
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A
Right?
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B
They were. So I think it's likely to pass, but I think it's going to be interesting to see the messaging around it. And I'm going to have my questions about whether BlackRock, Vanguard and state street, if they vote in favor, are doing it because they genuinely think that it's better for shareholders or at least neutral or because they feel like they can't really oppose Exxon.
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A
You can be sure that they pre cleared this or at least discussed it with the major shareholders. Others, you know, Exxon's gotten burned, you know enough by particularly the engine number One situation where they, they, you know, and, you know, Exxon's a famously arrogant company in its governance just over the years. That's why engine number one was able to succeed the way they did. But that was like, you know, five years ago now. So that's the first thing is, is they have at least discussed it with them. Okay.
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B
I mean, the thing is that the interesting news, there are really proxy solicitation rules that limit what kind of communication they can make. But.
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A
Yeah, and there's also, you know, there's. And, and I would guess that the, that, you know, most of the big institutions are a little wary about, you know, having too much in the way of conversations about this kind of stuff because of the, you know, they don't start filing 13Ds if that's going to become necessary. But you know, that's also, you know, depends a little bit on the direction of the communication. But anyway, so I think it's, I would think that at least the big institutions, you can include some others, JP Morgan Asset Management and T. Rowe Price, you know, Whoever the top 10 or 12 or whatever are, they're probably a little inclined to support this or to not oppose it. That's, that's my guess. I hope I'm wrong, but I'm sure
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B
we're gonna see a lot of, you know, exempt solicitation.
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A
There's be a lot of communications, a lot of people jumping up and down. A couple things though. First, Exxon also has this enormous retail base.
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B
Yeah. All 3% of which, or 2% of which have actually signed up for their program, by the way.
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A
Right, right. But they, you know, Exxon, you know, they can, you know, they make a case here, which I'll talk about in two seconds. Second, you know, there's a lot of other institutions that just, you know, view this as an arcane or routine or whatever. They're not going to be paying close attention unless they're, you know, really following the proxy advisors, ISIS and Glass Lewis, which I almost certainly will oppose this. They opposed it in Tesla?
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B
Well, no, they didn't. No, they didn't. No, because remember at that time Texas's law.
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A
Oh, right. Okay.
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B
Was very similar.
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A
It was the camp stuff anyway. Yeah.
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B
So I don't think I, I'm pretty sure ISS didn't oppose the move. Glass Lewis, I would have to check.
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A
Well, anyway, I would expect that the proxy advisors would likely. Well, now that unless the political pressure is mounting on them.
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B
The political pressure is probably mounting on them hard too. But I'll actually Be really interested to see what the proxy advisors say, given how Texas's law has changed since the Texas. Since the Tesla move.
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A
Right. So, so, so, so, you know, but again, I'm not trying to diminish that this is a dilemma for all these, all these, you know, institutions. And part of the problem is that Exxon can kind of make the case that it's a. It's really a Texas based.
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B
It really can. But that has nothing to do with incorporation and. Oh, no, of course, like, and they can't even claim that. Oh my God, we are the subject of totally frivolous, distracting lawsuits. Because they actually aren't.
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A
No.
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B
And they are going to make this commitment, though. But they aren't making a, like, commitment to not take advantage of. You know,
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A
I remember I was living out in New York when I was my first working in New York. And, you know, it was a big deal because Exxon pulled up its corporate headquarters from Rockefeller Center. It was based in New York City for decades and moved and moved. A plane moved to Texas.
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B
But that makes sense. That's operational. Like.
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A
Oh, yeah.
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B
I mean, like, however much companies say, like, we're moving because we have a Texas identity. I mean, that's silly. It has nothing to do with the state of incorporation, but.
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A
Oh, right. No, right. I'm just saying that especially given their history.
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B
I mean, somebody pointed out online that, like, they still list something like the names of some of the original incorporators in their charter. Like, that's how much they trace their history back. And New Jersey is actually a big part of that history because of its role in corporate law right now.
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A
How. One more question that's. Then we're gonna have to talk about something else. How symbolic is this relative to Texas's position in this race to the bottom? Relative to. I mean, I don't see New Jersey really caring deeply about this, but maybe Delaware does.
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B
Yeah. So there's been commentary, mostly from Texans to the effect that Exxon being this blue chip mainstream company, this kind of heralds that Texas is breaking through and is now is poised to be a real threat to Delaware. And I'm not buying it. I mean, first of all, remember, New Jersey's law is probably more like what Delaware's was prior to SB21. Delaware's now fixed a lot of things that were upsetting boards. But beyond that, I've said this before, and I'll keep saying it, Texas is really very explicitly creating a kind of politicized corporate governance. It's treating corporate governance as a culture War issue. It's targeting shareholder proposals which usually have a liberal bent. They've got their anti ESG proxy advisor law and they're using the court system for this kind of thing as well. Like the Cole antitrust lawsuit is one. And we talked about the American Airlines lawsuit that was in federal rather than state court, but it's still Texas judge, the Texas legal establishment. And in that case we had a whole pot on this. A Texas federal judge reached the evidence free conclusion that American Airlines breached its
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A
fiduciary duties by having BlackRock funds in
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B
its 401 plan because BlackRock was voting for a couple of climate change measures. Ken Paxton, very conservative Texas attorney general. He actually has sued immigrant focused nonprofits in Texas to get their charters dissolved. So I think companies are likely to think boards are likely to think that they're opening themselves up to political hassle if they incorporate in Texas. What if the legislature declares any board ESG considerations or a breach of fiduciary duty, which has actually been proposed. It didn't pass, but it was proposed. What if the company suddenly gets shareholder lawsuits accusing them of being too woke brought in Texas courts before judges that
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A
seem very resistant, that seems sympathetic to that case.
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B
Yeah, I mean we had a whole pod also on how target was the subject of an anti woke securities fraud lawsuit in Florida and the court refused to dismiss it. That case is still ongoing. So incorporating in Texas just seems to invite that kind of risk. And so here's one sort of example. As I said, a bunch of red states are suing BlackRock in Texas claiming it's conspiring to suppress coal output. Well, guess what, there's now a tag along shareholder derivative lawsuit that's been filed against BlackRock. A shareholder is claiming that by participating in this alleged coal consumer conspiracy, BlackRock violated its fiduciary duties to its own
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shareholders as a public company.
- [26:14]
B
As a public company, BlackRock is incorporated in Delaware. But the shareholder filing this lawsuit filed in Texas before the same judge who refused to dismiss the Kohl lawsuit. Naturally now that shareholder is going to argue they filed there because the cases are related. But obviously that plaintiff also, I think quite reasonably thinks that this Texas judge who already said that the claims against blackrock have merit is going to be receptive to these derivative claims, even though they likely be dismissed in any other courtroom. So blackrock is right now moving to transfer this Texas derivative case out of Texas to the Southern District of New York. No, not Delaware, actually. Sdny. I don't know why, but I have no idea how that Transfer motion will go. But I'll tell you this, if BlackRock were actually incorporated in Texas, forget it. There is no chance that they would have this lawsuit transferred. And that's the kind of thing I think companies are risking by incorporating in Texas. In Exxon's case, that's not an issue. They're already headquartered there anyway. And also they already have the political protection of the state. And I think other moves to Texas that we've seen either involve Texas companies or companies that are seeking to declare a kind of political alignment with Texas, like Coinbase. But most companies aren't going to want to adopt that kind of political.
- [27:28]
A
I'm skeptical that this is going to portend a big wave.
- [27:33]
B
Yeah.
- [27:33]
A
I mean, you know, just like, just like, you know, we follow. You know, I can't remember one of your. Another law professor, you know, tracks all the Delaware exits and so forth. Ben Edwards. Right. And so forth. And you know, if you look at the, I mean there's some notable. Almost all controlled companies. Yeah. But this isn't, you know, this is a much more complicated issue. But it, again, I think we're, you're correct in bringing up some of the dilemmas that some of the big institutions face here in, you know, we're supposed to, you know, honor and respect and support shareholder rights, including the right to sue and submit proposals. But on the other hand, there's a lot of pressure to, you know, for a blue chip company like Exxon to kind of, you know, support their, you know, their economic wishes. So it's, it's. If it's. I don't envy the stewardship teams, no, the steward at these companies to try to try to figure out what they need to do.
- [28:29]
B
But I just, I don't see a lot of companies even wanting to make the move or putting their share holders in that position because the main thing Texas is selling over, say Nevada is the political branding. And most companies, if they really want that kind of, you know, liability free regime, they would prefer Nevada where they're not.
- [28:46]
A
Right. If you're really legitimately interested in trying to protect yourself from lawsuits. Yeah. Go to Nevada. Why not?
- [28:51]
B
Yeah.
- [28:52]
A
All right, Cool. All right, let's take a quick break and come back and look at some current proxy contests, kind of see what's, what's cooking for, for this coming, as we say, proxy season here at Shareholder Primacy.
- [29:07]
C
Shareholder Primacy is brought to you by Free Flow Analytics.com, the only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan, go to free flow analytics.com and look up which of your elected directors are performing well and which aren't. Use your vote in the alternative democracy and get your data @free flow analytics.com now back to the show.
- [29:33]
B
Welcome back to Shareholder Primacy. I'm Ann Lipton here with Mike Levin, and we're talking now about proxy contests. So what's coming up?
- [29:41]
A
Yes, let's do that. We haven't actually kind of even looked much. We did a recap last year about what 2025 was, but we didn't really take a look at what's to expect here. So we thought that would be kind of interesting to sort of see what's going on. And I think, you know, and others know that I have this little kind of odd hobby of tracking ones related to, at least related to universal proxy because I'm really interested in how universal proxy affects voting, actual votes. So trying to see which ones are coming and how they vote is something I've been doing. And it also just kind of informs, you know, what, what, what the hardcore activist environment is kind of like, because that, you know, proxy concepts are kind of the pinnacle of, of. Of that kind of those, that kind of engagement. So here we are mid March, and I have counted before this morning, we're recording this on a Monday. There were 16 pending proxy contests that we were expecting would go to a vote in the next two, three months. April, May, June, call it one kind of dropped off the list today. It got converted into a consent solicitation, which of course is not subject to universal proxy rules. So there's now 15 of these that are pending. There'll probably be a few more kind of announced, I would guess, in the next four to six weeks. As, you know, most of the notice periods have kind of wrapped up. But, you know, there's, you know, not everybody's kind of gotten gone public about, you know, the contest that they're conducting. Occasionally a company will make the first disclosure. Sometimes it's the activist who, you know, files preliminary proxy materials or files a D or just sends out a news release. So anyway, so now there's kind of 15 that are on the list. That's a couple, two, three more than I recall we had around this time last year. So it's a little bit of an increase, but not enough to be, you know, statistically significant. I don't think the sample sizes, that's one of the things I have to always remind people is the sample sizes on this are really small. So trying to develop any kind of really Hardcore conclusions about whether activists are succeeding or whether companies are doing better is really hard when you're only looking at well under 20 that go to a vote in a year. But what's interesting to me at least, was who's on the list. There are a couple for Starboard Value, Jeff Smith's fund in New York, which is of course a very successful and aggressive.
- [32:38]
B
Yes, they're Olive Garden.
- [32:42]
A
Yeah, they were the olive. The original, which I.
- [32:45]
B
Every year I show it in my class. I'd love.
- [32:46]
A
Oh, you teach it.
- [32:47]
B
But there's. I teach it because I. I would love something more newer. It's getting a little old now, but there's still nothing nearly as interesting.
- [32:53]
A
Still some truths there that are just. So they have two pending. One is at CarMax that they just announced, I think last week, where they're looking for two out of 10 directors. And then another one is TripAdvisor, which is the old Liberty Media.
- [33:10]
B
Right.
- [33:10]
A
Holding, which is now independent.
- [33:12]
B
Did they haven't changed their control structure?
- [33:16]
A
No, I'm sorry, yeah.
- [33:18]
B
Weren't they a controlled company?
- [33:20]
A
Yeah.
- [33:20]
B
Right.
- [33:20]
A
So now, yeah, that's all been changed around now. So they're. They're more of a kind of usual public company. And Starboard Value has just said they're looking for majority of the board, but they haven't said how many seats they're. They're looking for. And, you know, one of the. Both those, you know, could conceivably settle. Starbird's one of these really good funds that, you know, doesn't go to an actual vote, you know, that. That often another contest that has a, you know, veteran, experienced activist is at a company called Wax Wex, which is the activist is Impactive Capital, led by Lauren Taylor Wolff, really, really experienced, good activist. They're looking for four out of 11 board seats. What was interesting about that is, and we talked about this in the pod, like probably a year ago, Impactive, last year at this time, just came out and said, this is how we want to vote, how we're planning on voting on directions. They basically did a withhold or vote no and some of the directors and evidently that didn't have the impact that they wanted in terms of turning the business around. So now Impactive came out and nominated or notified the company that they're going to nominate four out of 11 directors at what we're guessing would be a May AGM. So that's sort of a follow on to their earlier, earlier campaign. There's a couple other interesting kind of things going on. There's Two different kind of REIT real estate ones. One's called Whitestone. The other one is First Industrial. Whitestone is an activist that I never heard of called Pillarstone. First Industrial REIT is Jonathan Litt at Landed Buildings, who always.
- [35:06]
B
They're called Whitestone.
- [35:08]
A
Whitestone. The Whitestone reit.
- [35:10]
B
I just think that's so fun. I mean, Blackrock, Blackstone, Blackrock. There are so many.
- [35:16]
A
Right, exactly. Whitestone reit. It's not a read I'm familiar. I. You know, one area that I just never get into is real estate in terms of activism. So. So there's two REIT ones which are interesting because these are almost always pursued under Maryland law, which is famously, you know, friendly.
- [35:33]
B
I've actually seen a couple of those. Yeah, they did an arbitration provision in their bylaws once. There was one. Right.
- [35:38]
A
Yeah, there are three where they're arguably like not an activist fund, but like a company is pursuing an activist project. One of them is in the shipping industry. So genco is the target. And a company called Diana Shipping has been trying to do a deal with them. And so they've nominated six out of seven directors. Another one is really interesting where Beretta, the firearms manufacturer, is trying to elect directors at Sturm. Ruger. Ruger. Ruger. RGR is the ticker.
- [36:15]
B
I. Yeah, I always thought it was Ruger, but yeah, Ruger.
- [36:18]
A
So in the firearms industry, in the handgun business.
- [36:21]
B
And the third, they're not running on a gun control platform.
- [36:27]
A
There's not a whole lot of social, social ESG stuff there.
- [36:30]
B
It's mostly just you get shareholder proposals that way, but.
- [36:33]
A
Oh, absolutely. But. And the third is, I think, going to be, you know, very high profile because there's a lot of ego is at Lululemon. Lululemon Athletica, where the former founder.
- [36:44]
B
Oh, right, it's the former founder. I saw that in the Wall Street
- [36:46]
A
Journal because they is running three out of four directors on a classic disagree
- [36:50]
B
with their whole strategy.
- [36:51]
A
So there's. So there's three again, kind of company based. And. And you know, this kind of harkens back to the bad old days when, you know, people were into hostile takeovers and so forth. Yeah, so. So there's. There's some interesting ones that way to sort of see where, you know, activism is going to affect more of the M and A or, you know, some of the REIT ones are kind of, kind of cool. Interestingly, in six of these, 14 or 15, the activists are seeking at least a majority of, let's say the available seats that's not necessarily a majority of the board, but that's a majority of what could be voted on. So in a classified board, of course you're not going to ever get a majority, but so activists are, you know, showing some ambition. So I think that's an artifact. Universal Proxy has. Has allowed activists or dissidents or whatever to be somewhat more aggressive in what they start to look for, what they settle for, what they end up getting is different story. But at least, you know, a significant number of these. The. The activists have at least started looking for at least a majority and at least three of them. I think it's every available seat. So, like at the Whitestone Re1, there's six board directors up. I believe that's the full board. And pillarstone's looking to elect all six. At genco, Diana Shipping is looking for six out of seven. So that's. There's some ambition being. Being demonstrated here that's really kind of. Kind of interesting. So, yeah, you know, I'm guessing several of these will probably settle based on, you know, who the activist is and, you know, based on what's going on. A couple of these aren't like Joe Stillwell, who is a, you know, individual activist who goes after regional and local banks. He never settles this stuff. He'll. He'll just probably take these to a vote and not the.
- [38:51]
B
Not the clothing one, I guess, because that's just.
- [38:53]
A
Yeah, yeah. Lululemon. Yeah, Lululemon is almost certainly going to go to go to a vote. I'd guess there's too much.
- [38:59]
B
Well, that.
- [39:00]
A
Too much ego involved there.
- [39:01]
B
Well, well, I mean, since it's really about the strategy for the clothing line. If nothing else, it's going to generate some materials that I can use in a classroom.
- [39:08]
A
Yep, exactly. Anyway, so that's kind of what's kind of going on now. Like I said, we'll probably get a few more, but they'll probably be a dozen or more for us to talk about in a couple of months to sort of see how the votes work out, you know, whether other ones get added. You know, there's some. Some others that have been kind of talked about. So for example, I think it was Elliot was making noise about doing something at Pepsi. I can't remember if that settled, but that would be huge.
- [39:37]
B
I saw that settled, but I'm not sure if that's right. Yeah, yeah, they definitely set a headline.
- [39:43]
A
So that's so. So just to recap, there's a little more activity than maybe we had seen in the past year or two. And the activists are certainly asking or seeking a lot relative to what they'd done before. You know, how it ends up whether they'll get one or two. You know, up till now, there's been so far since September, there's over five that actually went to a vote. In two out of the five, including one I was involved in, the activists won. Some are all what they were looking for. And in three, they got, you know, bupkis. They got zero. So, and that's, you know, again, with a really tiny sample. That's about right. You know, little, little, you know, batting less than.500 is, is about right for, for how activists tend to do when they actually go to a vote these days. So anyway, so that's, that's the update for now on what's happening on Universal Proxy. On proxy contest under Universal Proxy. All right.
- [40:42]
B
Okay. Well, great.
- [40:44]
A
All right, let's maybe move on and get on with the rest of our week. How's that sound, Ian?
- [40:49]
B
Okay, sure.
- [40:49]
A
All right. This is Shareholder Primacy, hosted by Ann Lifton and me, Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations. Ann is the professor of of law and The Lawrence W. DeMuth Chair of Business Law at the University of Colorado Law School. You can find me, mike@theactivistinvestor.com you can find Ann at Law Colorado. Edu. Our podcast is produced and distributed by our friends at Free Float Media. Thanks for listening. We'll talk again soon.