Tuesday, May 20, 2008

Crossing the Rubicon?

Although I haven't made any great study of the history of shareholder revolts, I suspect that it is fairly unusual for one to occur when a company is enjoying record earnings, not only relative to its own past performance, but when compared against the performance of any firm in any industry at any time. And yet, that's where ExxonMobil finds itself today, with no less a group of stakeholders than the descendants of the firm's founding dynasty weighing in on the subject of its investment choices, particularly with regard to alternative energy. The Rockefellers have been joined in this effort by other investors and shareholder advisers. Whatever you may think about the shareholder resolutions in question, or indeed about the issues that they raise, the corporation's Annual Meeting is precisely the right venue for addressing them.

You might recall that when I wrote about a recent Congressional hearing on oil prices, I wasn't terribly sympathetic to the way that Chairman Markey pilloried ExxonMobil for pursuing alternative energy less enthusiastically than some of its competitors, or than the Congress might wish. When the Congress or the President can direct the portfolio decisions of publicly-traded companies on matters that do not involve their compliance with any known law or regulation, our political and economic system will have lost all resemblance to the one established by the Founders. However, the management and board of a corporation are still answerable on such issues to their shareholders, however silent the latter may be most of the time, especially when a company's fortunes are prospering.

Many of my readers regard investing in renewable energy as an obvious choice at this juncture, in light of the uncertainties of climate change and Peak Oil, more restrictive access to resources, and the rapid technological changes sweeping the global energy sector. I have long believed and advised that any integrated energy corporation that doesn't participate in the development of alternative energy puts its future success and image at risk. However, that doesn't mean that a company's management can't weigh all of these factors and conclude that it is still better off focusing on the areas in which it has excelled, a strategy that the landmark business text, "In Search of Excellence" referred to as "Sticking to the Knitting"--one of a handful of key lessons the authors gleaned from their study of successful companies. (Among other things, Peters and Waterman also extolled "A Bias for Action" and experimentation.)

The question that ExxonMobil's shareholders are effectively posing is whether its otherwise admirable capital discipline prevents management from seeing the long-term potential of a set of developments that could prove as significant as the original oil boom 150 years ago. John D. Rockefeller's vision of the growth of an oil-based economy, and how to capitalize on it, made Standard Oil--the precursor of the modern ExxonMobil--one of the most successful organizations in history, even after being broken up and only partially reassembled in the late 1990s. Even if you are skeptical, as I am, that we are on the verge of ending oil's key role as a source of primary energy and a superior energy carrier, it seems quite likely that the winners of the ongoing competition to crack the challenges of biofuels, solar power, and other alternatives will make new, Rockefeller-scale fortunes. A company should only turn its back on that kind of opportunity after some serious soul-searching and a frank discussion with its owners.

Some perspective seems necessary, as well. While the shareholder challenge to Exxon's management is a significant event within the larger trend of the greening of business, it would be a mistake to view it as a crusade. If the proposals currently being voted on by ExxonMobil's owners succeed, they will not end America's addiction to oil or bring the millennium. If they fail, that will not signify that we have passed the baton of moral or technological leadership to any other country or group of countries. The alternative energy revolution will stand or fall on its own merits, with or without Exxon. The company's shareholders must now decide whether or not the reverse is also true. Although I'm not endorsing any of these resolutions, I sincerely hope that both sides treat this as a unique and valuable opportunity to rethink their assumptions, scenarios and strategies concerning the future of energy.

I don't own any ExxonMobil stock, except in the manner in which millions of Americans do, as a component of various mutual funds.

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