Recently, a duo of climate activists scored board seats for ExxonMobil Corporation (NYSE:XOM). This is a prime example of shareholder rights. The nominees from hedge fund Engine No. 1 spent millions to gain shareholder approval and it worked.
What are shareholder rights, and how can you exercise them in your investments?
What are shareholder rights as partial company owners?
Your individual stake in Zoom, Amazon, or Tesla (or other, less trendy companies) doesn't give you substantial control of the entity. However, even the smallest investors are entitled to certain rights.
Your specific rights depend on what type of security you hold (for example, bonds or stocks).
There are different levels to rights as a shareholder
Your rights as a shareholder depend on what class of stock you own—bonds, preferred stock, or common stock.
Owning bond shares means that you're funding the company's debts. This gives you earlier rights to repayment if the company liquidates. However, the company pays creditors before bondholders, and bondholders only get paid if there's money left over.
Equity shareholders in the retail space are most likely to own common stock. Common stockholders have six types of rights, including the right to:
Own (and receive returns)
Receive dividends if available
Inspect documentation (which can be found on the EDGAR search on SEC.gov)
Exercising your shareholder rights through proxy votes
All corporations have boards—a group of individuals who vote on different company matters. For public companies, shareholders can exercise their right to vote.
For example, the existing board might nominate new board members, but the overall consensus of the shareholders is the final say.
Some brokerages send alerts to shareholders when an election occurs. These elections take place at the annual shareholder's meeting. You can attend the meeting virtually or use a voting service that allows you to place your ballot by proxy (like proxyvote.com). Your brokerage supplies you with a control number to cast your vote.
Exxon's newest board members highlight the real power of shareholders.
The story of Exxon versus Engine No. 1 is reminiscent of a triumphant coup. After a vote, Exxon announced that shareholders backed two nominees whom the existing board had fought tirelessly.
The new board members, Gregory Goff and Kaisa Hietela, are pushing for Exxon to achieve carbon neutrality by 2050. They both want the board to do more for climate change and the shift to renewable energy. They're especially targeting the company's own investment portfolio to help support energy that doesn't require fossil fuels and plastics.
Meanwhile, the existing board was open about its plan to expand drilling. They want to continue to meet oil demand.
Currently, Exxon is in the middle ground. The company is losing returns to fossil fuels and doesn't have the ESG (environmental, social, and governance) credibility necessary to lure the modern sustainable investor. The involvement of Engine No. 1, which holds just 0.02 percent of Exxon, is as much a corporate matter as it is a climate one.
An empowering example of shareholder rights, Goff and Hietela will centralize ESG issues in the Exxon boardroom, perhaps inspiring even the most remote retail investors to take their rights to heart.