The Activist Investor
Awhile ago we explained the basics of rational
apathy, the idea that voting in elections, especially
voting at AGMs, costs more than it’s worth to many or most
shareholders. Exxon Mobil (XOM) just announced a new retail voting
outreach program that illustrates the idea almost perfectly.
This week XOM asked the
SEC for no-action relief for its “Retail Voting Program”. The same
day, the SEC staff granted it
that relief. While it looks like XOM wants to rig the voting at its
AGMs, it seems more likely that it will mostly help its most loyal
shareholders to cast those votes.
The Retail Voting Program
It allows retail shareholders to authorize XOM to vote their shares
following BoD recommendations. Rather than finding and studying proxy
materials and voting for individual items each year, a shareholder can
tell XOM to vote their shares however the BoD advises. A shareholder
does this once, and XOM will have its authorization for all future
AGMs.
XOM will offer shareholders two options: vote the BoD recommendation
for all AGM matters or for all matters besides director elections and
deals that require shareholder approval. For the latter, this means
voting the BoD recommendation on shareholder proposals, bylaw
amendments, say-on-pay, auditor ratification, and equity plan
authorization, among other items.
XOM will remind shareholders of the standing instruction each year. At
that point shareholders can cancel participation. They can also
override the BoD recommendation at a given AGM by completing the proxy
card for that AGM. XOM will cast a shareholder’s vote on the day it
issues a definitive proxy statement, so a subsequent proxy card for
that AGM will override that vote.
XOM needs the SEC to bless this because a couple of technical
regulations limit an issuer from soliciting proxies that extend beyond
the next AGM. They argue, and the SEC agreed, the annual communication
with shareholders and opportunities to override or withdraw from the
program constitutes only annual proxy solicitation.
Retirees Want This
XOM argues somewhat vaguely that retail shareholders clamor for this:
retail investors, many of whom are retired and depend on [XOM]
dividends to support their livelihoods, have voiced significant
frustration over the annual time commitment required to vote at our
meetings of shareholders…
[XOM] engagements reveal that retail investors … are eager for a more
accessible way to participate in the Company’s voting process.
[XOM] has long received feedback from its retail investors that they
would welcome the ability to give a standing voting instruction
whereby, on an ongoing basis, their votes would be cast as recommended
by the [BoD]
XOM also notes 40% of its shares are held by retail investors, with
only 25% of those shares voted at the 2025 AGM. While data on retail
participation is scarce, in our limited experience 25% participation
of retail investors is actually relatively high compared to many other
companies.
We’d like to see the evidence of that “significant frustration”,
“eager” desire for “more accessible” participation, and “feedback”
about welcoming a “standing voting instruction” that follows the BoD
recommendation. Investor Relations must have notes from its meetings
with retail shareholders, right? It surveyed its retail shareholder
base? More importantly, it seems the SEC did not ask for that evidence
in granting no-action relief. If XOM has at most a few random
anecdotes from some loyal XOM retirees that contacted the call center,
then we’d want the SEC to question more closely the need for this
program.
Everything is Rational Apathy
Rational apathy arises when the costs of voting exceed the benefits.
In our explanation we
talked about two costs, of learning about the items on the AGM agenda
and of casting votes in the arcane and confusing proxy voting system.
XOM shrewdly lowers these costs. Its retail shareholders need not
research AGM agenda items, and can instead follow the BoD. Retail
shareholders dispense with the annual hassle of finding and completing
a proxy card and instead vote automatically.
We can’t tell whether this process improves retail shareholder
participation. We suspect it will make life easier for loyal XOM
shareholders that vote the BoD recommendation anyway. If it does bring
out more votes, then we expect it will increase participation by
perhaps a couple of percentage points. That hardly matters in most
votes these days.
XOM needs to develop the structure to document and record these voting
arrangements. They’ll need to coordinate with custodians, proxy
communications firms (Broadridge and Mediant), and others. Once they
do, we can envision many or even most US public companies adopting
something along these lines. While it might influence only a small
percentage of voting shares, companies will grab any edge available to
them.
ESG proponents will inevitably complain that XOM and others unfairly
influence shareholders in this way. As long as XOM goes to the trouble
to put together this structure, it should also allow shareholders to
authorize it to cast votes against the BoD recommendations. Maybe it
could allow shareholders to designate a policy, like “follow ISS”.
Pretty soon we arrive at a form of pass-through voting, but run by the
company. We wonder if the SEC thought about this dimension, too.
It’s difficult to object, though, to a system that promises to improve
shareholder participation, even if just by a little.
© 2025 Michael Levin
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