There are lots of things that OWNERS should hate about Exxon, all of which are related to their last decade of capital allocation in their presently legal business of petrochemicals. Yes, stockholders should be pissed and holding management and the Board accountable. Tens of billions of dollars went down the drain in poorly time acquisitions, the dividend payout ratio has exceeded cash generated and shares were repurchased seemingly blindly, without regard to fair value assessment. All par for the course for a lot of corporate America, and the usual usually occurs: the Board gets embarrassed, someone takes a fall with an 8 digit compensation exit, and a new version of the process begins anew. From time to time, actual learning and change occur via changes in board composition, capital allocation shifts, and business portfolio updates.

“Other people” seem to hate Exxon for all the woke reasons one can conjure. And Engine No. 1 hedge fund (which on a side note is being sued by Engine Capital for name appropriation), has done a nice job of seizing the opportunity for what I am sure they think are the good citizens of the world. They ran a very successful PR campaign against a defendant very few want to publicly defend and managed to snag at least two Board seats as of this writing.

Here are the problems of the world encapsulated in this process – you pick your order of importance:

1. To be factually clear, the ability of the renewable world to produce affordable energy for the world at large—this is not a U.S. phenomenon—is so ridiculously ineffectual, and the transition planning so poorly thought through, that the ONLY definitive path of these actual and suggested policies is to raise the price of carbon and decrease the earnings and the wealth of most of the planet that doesn’t read the New York Times. It’s just math. THAT will be the crisis ahead. It’s not funny, it’s not political and it sure isn’t ethical investing.
2. Exxon has proven itself to be barely capable of running its own business. It is absolute folly to suggest that they should take this expertise and now apply it to “fix” a carbon world through billions of dollars of investment in…whatever comes down the pike. That is the suggestion being foisted on energy companies around the world and it’s ridiculous. Why should the OWNERS of a public company not in Europe submit to this scheme? Umm, and go study the 1970s and see how that diversification played out for the major oil companies.
3. None of this means that Exxon should not be running its business like a proper steward by looking to reduce emissions and waste intelligently and economically with a net “more cash from less capital and less waste” attitude. Like ANYONE. One can argue about the pace, but the nonsense that permeates around the world that corporate entities spend all day figuring out ways to pollute, mangle human beings and somehow enjoy being card-carrying members of the Organization to Perpetuate All Human Ills is the process of people who apparently know little about how wealth is created. Corporate America does what most everyone else does, goes with the flow and no one can seriously suggest that carbon companies aren’t on plan with some parts of a global plan to be more focused on carbon emissions.
4. Indexing highly liquid assets and managing them as a fiduciary at a very low cost is an ingenious invention thanks to Jack Bogle. However, what we are seeing today are OBVIOUS problems with a system that has grown into country-sized entities grappling poorly with country-sized problems. The investment management industry has consolidated into a very small group of hands claiming to run money passively, yet apparently, default much of their ownership power into agendas for “one kind of client” that happens to be the one interested in pouring new money into higher fee “socially responsible” funds and then telling the rest of us what is good for us. All in the name of not losing old business by not kowtowing to the vocal minority. The cabal of “do it for the money” behemoth money management firms and their desire to simply maintain and grow assets, the proxy voting oligopoly that provides political cover, and the political establishment itself, create a dangerous precedent when economic owners can get uneconomic policies shoved down their throats by the work of someone who creatively inserted themselves into the game and owned less than 1% of a public company. We are simple people and want our business leaders to focus on successfully running their businesses, a process that involves ALL the ESG issues. And a show of hands for a proposal that eliminates a vote for a fund that deems itself “passive.” Are they really shareholders or just pass-through agents? I wonder what the Exxon vote results would have been if the underlying shareholders were polled? Why can’t there be an APP for that?
5. We have participated in numerous webinars and working groups on any variety of ESG-related topics. We are not “ludditing” these issues. I can assure you there is not a single issue in the headlines that we haven’t thought through and discussed amongst ourselves, with our peers, and as it relates to our holdings.  We have direct knowledge of how raw the field is in terms of data, disclosures, intentions vs impact, or frankly the legality and morality of the mass of topics attempting to be lumped into one feel-good moment.  One thing I can tell you that what the world doesn’t need is more aimless disclosure about obvious issues because everyone NOT in a political advocacy group is obviously thinking about the same issues. Any investor who needs more disclosure about climate risks for an insurance company or an oil company shouldn’t have your money. And I can tell you our great and glorious corporate leaders have no idea what the future looks like any more than does your average Swedish teenager.

We are here to make money in an ethical and responsible way for new and prospective clients through “fair, transparent and aligned” fees, giving 120% effort to do what we said we were going to do, offering transparency around process and results, and just generally thinking about what’s right for you whether you may currently know it or not. We spend all day questioning the “face” of what is presented to us and that process will continue to include a lot of what we barely discussed above. We are here to discuss.