Energy industry is the main target of activist investor groups.
This proxy season has seen activist investors push a slew of resolutions aimed at forcing companies to provide more disclosure about environmental, social and safety risks. As investors saw stock prices plunge after man-made disasters such as last year’s Massey Energy mine explosion and BP’s Gulf oil spill, they are now more concerned about the risks natural disasters pose to company bottom lines, and they are challenging corporate boards to make sure they are prepared for the worst.
The AFL-CIO put forth proposals asking that seven companies in the oil industry report on the steps they have taken to reduce the risk of accidents within 90 days of their annual meetings, asking each board to spell out how it oversees safety.
The proposals gained significant shareholder support at the annual meetings for oil refining company Tesoro, where it mustered 54 percent of the vote (though the number of abstentions was so high, it failed to pass), and at the meeting for Valero Energy where it garnered 43 percent. The union withdrew the proposal from Sunoco’s ballot, after the company agreed to voluntarily implement a reporting process.
Exxon and Chevron successfully petitioned the SEC to remove the item from their proxies. But they faced other challenges. At Exxon’s annual meeting, 30 percent of shareholders supported a proposal requiring more disclosure on the environmental risks of extracting oil and natural gas through hydraulic fracturing, while 41 percent of shareholders backed a similar resolution at Chevron Corp.
Chevron beat back another challenge that some corporate governance observers say may become more common in the years ahead. Shareholders put forth a proposal that the Chevron’s board add an independent director with environmental expertise, citing SEC rules requiring companies to list the relevant experience of the directors that sit on their boards. The proposal garnered 25 percent of the vote.
‘Asking companies to have an environmental specialist really came to the forefront this year,’ says Patrick McGurn, executive director of Institutional Shareholder Services (ISS) in Rockville, Md. ‘And we may see more of it.’
Utilities that rely on coal also found themselves in the crosshairs of activist investors lobbying fellow shareholders for greater environmental risk disclosure.
One group, As You Sow It, is targeting eight electric utilities, including CMS Energy, Dominion Power, Duke Energy, Entergy and First Energy. The activist group is pushing a resolution that would require these companies to report on all the ‘financial risks of continued reliance on coal’, including the cumulative costs of environmental compliance, by September 2011. The resolution cited pending EPA regulations on coal combustion waste, and coal price volatility. Such reporting requirements would add costs, but some new costs have already hit. EPA regulations that took effect January 1 require plants that emit more than 75,000 tons of CO2 a year to use ‘the best available technology’ to control the release.
Another slate of activists has filed petitions requiring that other companies report on efforts to reduce environmental and health hazards related to the risk of coal ash waste.
Though the advocates of these measures clearly have an environmental agenda that goes beyond improving company balance sheets, their arguments appeared to resonate with at least some mainstream investors. At Ameren, the proposal garnered almost 75 million votes, compared to 67 million against, 19 million abstentions and 38 million broker non-votes, according to ISS.
Meanwhile, at the meetings for the companies involved in last year’s Deepwater oil spill—which prompted many of these new proposals—shareholders put corporate boards through the wringer. BP’s annual meeting in London was its first since last year’s disastrous spill. Outside, Louisiana fishermen scuffled with security guards. Inside, shareholders delivered a stinging rebuke to director William Castell, who chairs the board’s Safety, Ethics and Environment Assurance Committee. Roughly 43 percent of shareholders voted against retaining him as a director.
At the annual meeting for Transocean, the oil driller in the BP accident, a proposal that would have protected the directors and management from shareholder lawsuits for their actions in 2010 was soundly defeated.
Stock in the Japanese utility company, Tepco, which runs the damaged Fukushima nuclear power plants, had lost three-quarters of its value as the company’s management prepared to face investors at its annual meeting in June.
With the success that activist groups had this year, experts project the number of proposals connected to environmental risk to continue to increase.
