An Activist Investor Leads a Rebellion Against Exxon Mobil

A small activist investment fund scored a huge win.

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Darren Woods, Exxon Mobil’s C.E.O., suffered a big defeat in his fight with an activist investor.Credit…Brendan McDermid/Reuters

The little Engine …

Exxon Mobil suffered a stunning loss at its annual shareholder meeting yesterday, as a small new activist investor focused on climate change, Engine No. 1, won at least two seats on its 12-member board. To corporate America, the upset was a clear sign that company boards and leaders need to pay attention to environmental, social and governance issues (known as E.S.G.) — or suffer rebukes.

A big splash for a tiny fund. Exxon was the first activist campaign for Engine No. 1, which was founded last year by the energy and tech investor Chris James. Its head of active engagement is Charlie Penner, a veteran hedge fund executive who helped lead campaigns against companies like Apple while at Jana Partners.

It was a victory long in the making. Engine No. 1 began agitating against the oil giant in December, calling on the company to diversify away from fossil fuels and reduce its carbon emissions. But it began work on the campaign last March, courting large investors like public pension funds that held far larger stakes in Exxon, and thus had more sway. That’s how it parlayed a stake of just 0.02 percent into seats on the oil giant’s board — a truly remarkable feat. Exxon’s shares rose 1.2 percent yesterday.

Sources with knowledge of the matter told DealBook that the fund was betting on a confluence of events, including longstanding investor dissatisfaction with Exxon’s corporate governance and a growing appreciation on Wall Street for E.S.G.

In a note explaining why it backed three of Engine No. 1’s board candidates, BlackRock — which owns nearly 7 percent of Exxon — said the company’s directors “need to further assess the company’s strategy and board expertise against the possibility that demand for fossil fuels may decline rapidly in the coming decades.”

Exxon largely played down Engine No. 1’s concerns, and pressured the firm to drop its challenge after a much bigger hedge fund, D.E. Shaw, called off a campaign. But Engine No. 1 persisted, and also benefited from timing: It began its campaign while oil prices were still depressed by the pandemic. Had oil not rebounded in recent months, Engine No. 1 executives believe, all four of its directors might have been elected.

Big Oil is facing a reckoning. A Dutch court ruled yesterday that Royal Dutch Shell must speed up its efforts to cut its carbon emissions. And Chevron shareholders backed a proposal to compel the company to help customers reduce their own emissions.

One question we have: Is Darren Woods, Exxon’s C.E.O., who pushed back forcefully against Engine No. 1, now at risk of losing his job?

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HERE’S WHAT’S HAPPENING

The Justice Department opens an inquiry into Archegos. Prosecutors have asked some of the fund’s lenders for information about its meltdown, Bloomberg reports.

The rare blood clots associated with Covid-19 vaccines may have a fixable explanation. German scientists theorize that a feature of the AstraZeneca and Johnson & Johnson shots, one they say could be modified, may be responsible.

Russia puts pressure on U.S. tech giants. Moscow’s internet regulator now regularly demands that Facebook, Google and Twitter comply with its content restrictions and data storage requirements, or risk losing access to Russian users. It’s the latest instance of governments squeezing Silicon Valley companies.

Ford pours billions more into electric vehicles. The company will increase spending on the technology by a third, to $30 billion. It now expects 40 percent of the vehicles it produces worldwide to be electric by 2030.

Purdue Pharma’s restructuring plan is set for a vote. The judge overseeing the OxyContin maker’s bankruptcy case said he would let the company’s proposal — in which it would become a nonprofit, and both it and its founding Sackler family would be shielded from future legal liability — be voted on by 614,000 claimants.

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A culture of fear at the Gateses’ investment firm

Bill Gates’s longtime money manager, Michael Larson, bullied co-workers, made sexually inappropriate comments and engaged in a broad pattern of inappropriate workplace behavior, an investigation by The Times found. For the past 27 years, Larson has run Cascade Investment, also sometimes known as Bill and Melinda Gates Investments (B.M.G.I.), which manages the Gateses’ enormous fortune. Among The Times’s findings:

Larson made inappropriate comments about female employees. At a work party in the mid-2000s, he asked male employees which of three female colleagues they would want to have sex with. In another case, he asked an employee who was on a Weight Watchers program, “Are you losing weight for me?” Larson denied making any of the comments.

A racist comment from Larson led to an internal investigation. When a Black employee mentioned on Election Day that she had not had to wait in line to vote, Larson replied, “But you live in the ghetto, and everybody knows that Black people don’t vote.” A spokesman for Larson, Chris Giglio, denied that he made the remark. At least one employee reported it to human resources, resulting in an internal investigation.

Larson was known for “Larson bombs.” In emails, he sometimes called colleagues “stupid” or their work “garbage.” Some employees were moved to different floors in order to put distance between them and him. “Years ago, earlier in my career, I used harsh language that I would not use today,” Larson said. “I regret this greatly but have done a lot of work to change.”

“Any issue raised over the company’s history has been taken seriously and resolved appropriately,” said Bridgitt Arnold, a spokeswoman for Bill Gates.

Courtney Wade, a spokeswoman for Melinda French Gates, said, “Melinda unequivocally condemns disrespectful and inappropriate conduct in the workplace. She was unaware of most of these allegations given her lack of ownership of and control over B.M.G.I.”

“During his tenure, Mr. Larson has managed over 380 people, and there have been fewer than five complaints related to him in total,” said Giglio, Larson’s spokesman. “Any complaint was investigated and treated seriously and fully examined, and none merited Mr. Larson’s dismissal.”

Overdraft math lessons

Yesterday, the Senate Banking Committee held a three-hour hearing with C.E.O.s from the country’s six biggest banks. It lacked much of the heat of sessions in the aftermath of the financial crisis, when Congress routinely castigated Wall Street chiefs. (The C.E.O.s gather again today for a hearing in the House.)

The most contentious moment came when Jamie Dimon of JPMorgan Chase felt the wrath of Senator Elizabeth Warren, Democrat of Massachusetts. Warren was a teacher before entering politics; she revealed her roots when she took Dimon and others to task for charging overdraft fees during the pandemic.

The four biggest banks took $4 billion in overdraft fees from customers last year, Warren said. She singled out Dimon, asking him how much his bank, the nation’s largest, collected in 2020.

“I think your numbers are totally inaccurate,” he countered. Dimon noted that JPMorgan waived fees upon request, didn’t go into overdraft at the Fed (which had waived its fees for banks), and provided $120 million in Covid relief. The senator kept pressing and finally provided the figure herself: “It’s $1.463 billion dollars.”

“I did the math for you,” Warren said, calling their claims about stepping up during the pandemic “about $4 billion dollars’ worth of baloney.” When challenged to return the fees, none agreed. She asked Dimon directly twice, and he said “no” twice.

Amazon, MGM and the streaming wars

Amazon said yesterday that it would acquire the 97-year-old film and television studio MGM for $8.45 billion — about 40 percent more than what other potential buyers, including Apple and Comcast, were willing to pay. The deal reportedly made MGM’s owner, the hedge fund Anchorage Capital, a $2 billion profit.

DealBook talked with Brooks Barnes, a reporter at The Times who covers Hollywood, about why Amazon was willing to pay so much and what this means for the streaming wars.

Are Amazon’s motives different from other streaming platforms’?

Amazon is mostly in the Prime membership business, whereas Netflix wants to sell subscriptions purely to its TV and movies. If you’re Amazon, you want to bolster Prime Video to make people even happier to pay for a Prime membership.

Is there a risk that regulators won’t allow the deal?

The regulatory scrutiny will be considerable. Representative Ken Buck and Senator Amy Klobuchar, both of whom have important antitrust roles, immediately voiced concern because Amazon is Amazon. But the deal is unlikely to be scuttled because MGM is relatively small and so is Amazon Studios.

What does the acquisition mean for the streaming wars?

If you’re Apple, you’re probably looking around and thinking, well, we don’t have a library, we don’t have a big franchise of our own. Do we need to go out and buy? People think that it will increase the pressure on other streaming services to bulk up.

And that’s becoming harder, right?

It’s becoming harder, which is partly, I’m sure, how Amazon justified some of the price. Disney isn’t for sale. Sony has repeatedly said its TV and movie operation is not for sale.

It’s also becoming harder in part because the corporate sibling studios are not licensing out as much — they’re supplying their own streaming services.

More takes on the deal:

Jason Hirschhorn, a former MGM board member, has been thinking out loud on Twitter about the deal, including the intriguing possibility that Amazon could buy out the family that controls MGM’s James Bond franchise, gaining more freedom to expand the Bond “universe.”

Brad Stone, the author of the new book “Amazon Unbound,” shared Jeff Bezos’s 12 ingredients for hit shows.

MGM owns the rights to “The Apprentice,” including unaired material that some claim contains unflattering footage of the reality show’s former host, Donald Trump. The tapes’ contractual status is unclear, but the notion that they might belong to Bezos, a frequent target of Trump’s ire when he was president, has set tongues wagging.

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THE SPEED READ

Deals

HSBC plans to sell or close most of its U.S. retail branches, as it focuses on Asia. (WSJ)

Investors in Bill Ackman’s $5 billion SPAC are increasingly worried that it won’t strike a deal. (Institutional Investor)

Politics and policy

How Covax, the multibillion-dollar global vaccination program backed by governments and drug makers, ran aground. (WSJ)

Tech

Jeff Bezos’s last day as Amazon’s C.E.O. will be July 5, the anniversary of the e-commerce giant’s incorporation. Separately, a report that Amazon may open physical pharmacies tanked shares in Walgreens and CVS. (CNN, Insider)

An Apple job listing may hint at an interest in crypto. (CNBC)

Best of the rest

A record number of American workers tested positive for marijuana last year. (Insider)

The white woman who called police on a Black bird-watcher in Central Park last year sued her former employer, Franklin Templeton, for firing her over the incident. (NYT)

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