Are Follow This and Arjuna Capital Violating Antitrust Law in ExxonMobil Case?

January 23, 2024

ExxonMobil is exercising its legal right to put the kibosh on an ESG effort to force the company out of its main business of producing oil and gas, which the last time I checked is a legal business. After being overrun in 2021 when activist-investment firm Engine No. 1 succeeded in placing three directors on Exxon’s board, the company is showing that it remains uncowed by the ESG movement and its Rube Goldberg approach to the environment.

ExxonMobil wisely chose not to engage in pointless kabuki theater with the SEC and its progressive Chair Gary Gensler. ExxonMobil chose instead to pursue its legal rights in a Texas courtroom to block a proposal from investment activists Follow This and Arjuna Capital. The company has a sound legal strategy given that SEC rules allow it to reject shareholder proposals that would interfere with “ordinary business operations” and that have been previously rejected by shareholders.

“Defendants are asking ExxonMobil to change its day-to-day business by altering the mix of – or even eliminating – certain of the products that it sells,” ExxonMobil said in its filing. The goal is to “force ExxonMobil to change the nature of its ordinary business or to go out of business entirely.”

But Exxon’s suit also hints at something potentially more important, perhaps a broader arena for future ESG battles. The logic of its suit leads one to ask: Do the disingenuous and coordinated campaigns of activist shareholder groups amount to a conspiracy to violate the Sherman Act, which explicitly prohibits the “restraint of trade”?

The ExxonMobil lawsuit asserts: “Most shareholders invest in companies to help the companies grow and see a return on their investment. But Arjuna and Follow This are not like most shareholders. Driven by an extreme agenda, they pursue what Follow This calls a ‘Goldilocks Trojan Horse’ strategy: They (or their clients) become shareholders solely to campaign for change through shareholder proposals that are calculated to diminish the company’s existing business.”

Arjuna’s stated mission is to “shrink” energy companies. Its chief investment officer was found by a New York court to be “manifestly biased” against ExxonMobil – the opposite of what one would expect from an investor. Exxon declares that the practice of using a flawed shareholder proposal and proxy voting process that “does not serve investors’ interests has become ripe for abuse by activists with minimal shares and no interest in growing long-term shareholder value.”

It is obviously not in the interest of the millions of ExxonMobil investors for activists with a few shares to try to kill their investment. Such activists aren’t even addressing climate change in a realistic way – nothing here will stop China and India from building a coal-fired electricity plant every week. Instead, the ESG cartel is trying to bleed off the savings of retiree investors and raise prices for consumers. Remember them – consumers – the people the antitrust laws were devised to protect?