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5月 2020
Insights/ESG: Activists’ New BFF

ESG: Activists’ New BFF

〜によって Sabina Menschel

For 33 years, Lee Raymond has served on the board of directors of JPMorgan Chase & Co. But, according to a recent op–ed in The New York Times by environmentalist Bill McKibben, it’s time for him to go. His re–election has always been pro forma—he received the support of 94% shareholders last time—but this year is different.

What’s changed?

No recent misdeeds or #MeToo accusations against Mr. Raymond are to blame. Rather, it is his tenure as CEO of Exxon, later ExxonMobil, from the 1990s through the 2000s. At one time, it was exactly this professional pedigree that would have made him an attractive corporate board member, but in today’s climate (pun intended) his experience as the CEO of an oil giant has become a liability.

According to Mr. McKibben’s op–ed, “in recent months, Wall Street seemed to be reaching a tipping point on climate change. One big institution[al investor] after another began issuing position papers outlining their concern.” City and state pension funds are also joining the chorus. In the case of Mr. Raymond, New York City Comptroller Scott Stringer announced in mid–April that three New York City pension funds, which together hold 2.4 million shares of JPMorgan stock, would vote against Mr. Raymond in the upcoming shareholder vote, at least in part because of his “long history in the fossil fuel industry.” Mr. Stringer’s announcement was soon followed by similar statements from New York State’s Comptroller and Pennsylvania’s Treasurer.

The focus on Mr. Raymond’s tenure at Exxon reflects a larger trend that encourages shareholders to scrutinize the environmental, societal, and governance (“ESG”) performance of corporations, as well as that of board candidates. This scrutiny is fueled, in part, by the increasing influence of ESG–focused activist groups such as Majority Action, which, in addition to being active in the JPMorgan debate, focuses on ESG topics such as climate change, gun safety, and big tech accountability. With increasing fervor, the group is calling upon institutional investors to hold corporations accountable on ESG matters by voting to drive change. Additionally, activist hedge funds, while not “true believers,” will look to weaponize the ESG movement for their own purposes.

Given this trend, corporations would do well to obviate ESG liability when selecting senior managers and board members. Just as the #MeToo movement changed corporate behavior, the ESG phenomenon is compelling corporations to vet senior management candidates for ESG purity.

What to do?

Corporations that commission comprehensive investigations—inquiries that synthesize all available facts and scrutinize conduct, affiliations, and prior statements—raise the odds of detecting ESG trouble spots in a candidate’s background. Just as our January 2018 article “Keeping Predators Out of the Corner Office” provided guidance for hiring practices during the #MeToo era, what follows is advice for the ESG age:

  • Conduct exhaustive open source investigations in the public record. To identify potential ESG exposure, focus like a laser on a candidate’s employment history, both full time and as a board member for public, private, or non–profit entities. The most basic question is whether a candidate has been affiliated with an organization that would be a likely target for activists. When looking at a candidate’s affiliations, regulatory filings and corporate records should also be reviewed for related party transactions and self–dealing. Next, review litigation filings to determine, among other things, whether the candidate has been accused of improper governance and/or negligence while serving on another board. Finally, take a comprehensive look at social media and/or traditional media to identify problematic posts or public statements. As an example, among other complaints, Mr. Raymond is being condemned for delivering a speech in 1997 in which he paradoxically denied global warming was a threat and denied the oil and gas industry was culpable for global warming, if, in fact, it was a problem.
  • Make sure it’s comprehensive. As shown above, there doesn’t seem to be an “end date” with respect to problematic statements or affiliations. Mr. Raymond hasn’t been CEO of ExxonMobil since 2005—15 years ago—and the statements cited were made over 20 years ago. And yet they are still being scrutinized and turned against him. Therefore, a 10, 15 or even 20–year research window is not necessarily sufficient. To be as comprehensive as possible, an open source investigation should cover an individual’s entire career.
  • Speak to people. As with most comprehensive background investigations, it is important to speak with former colleagues, board members, and/or business partners. And it’s becoming increasingly important to ask specific questions about ESG exposure in addition to questions about all the traditional “reputational” and #MeToo concerns. For example, former board colleagues should be questioned about how seriously candidates took their governance responsibilities and board attendance. Likewise, former colleagues ought to be questioned about perks such as use of the corporate jet.

As with our #MeToo recommendations, nothing is foolproof. However, being attuned to these increasingly important ESG concerns and knowing the right questions to ask should help companies keep their investors happy and insulate themselves from activist attacks.

接触

Sabina Menschel

Partner, President & Chief Operating Officer

1401 K Street, NW
Suite 725
Washington, DC 20005
T: +1 202 545 3000
F: +1 202 379 3299
smenschel@nardelloandco.com

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