Shocking! The SEC rules that activist shareholders can't force oil companies to stop being oil companies!

Guest hyperbole by David Middleton

Since, someone will very likely comment that the article doesn’t say that activist shareholders were trying to force oil companies to stop being oil companies, I will answer preemptively:

  1. You don’t know what an oil company is or does.
  2. The thread title was intentionally hyperbolical.

One of the two answers above may be hyperbolical.

However, my thread title is not nearly as misleading as the title of this Axios article:

Amy Harder Apr 2

Investors stunned over oil producer’s climate-change exemption

A new twist is unfolding in the fight between activist investors and the oil industry: an unprecedented move by federal regulators allowing a major producer to preemptively kill a shareholder resolution on climate change without a vote.

Why it matters: The Securities and Exchange Commission’s support of oil producer EOG Resources is emerging as a flashpoint in what has become America’s central battleground over climate change: what investors do about it. It’s an arcane fight, but a consequential one too, because President Trump is reversing course on climate policy.

“What the SEC has done here really feels like interfering with the marketplace, substituting their judgment for what shareholders and investors already think and do.”— Jonas Kron, director of shareholder advocacy at Trillium Asset Management, the investment firm that filed the now-blocked resolution

For the record, spokespeople at the SEC and EOG both declined to comment.

The details: Trillium proposed a resolution calling on EOG to set a target to reduce its greenhouse gas emissions. EOG complained to the SEC in late December that the proposal would micromanage the company, calling it a “rigid, time-bound” target, and asked to omit it from consideration.

Responding in late February, the SEC agreed and took a veiled shot at shareholders, implying they don’t know enough to set company policy. The SEC sent another letter last month to Kron’s firm rejecting an appeal request.

[…]

Axios

This is what the activist shareholders demanded:

Resolved: Shareholders request EOG Resources, Inc. (EOG) adopt company-wide, quantitative, time-bound targets for reducing greenhouse gas (GHG) emissions and issue a report, at reasonable cost and omitting proprietary information, discussing its plans and progress towards achieving these targets.

I’ve only worked in the oil industry for 37 years… So forgive my ignorance… How in the hell could an oil company, particularly the largest oil producer in Texas, reduce its greenhouse gas emissions and remain a viable oil company? Drill less wells?  Produce less oil & natural gas?  Solar-powered oil fields?

EOG very politely asked the SEC to schist-can this activist shareholder demand for the following reasons:

Under Rule 14a-8(i)(7), a proposal is excludable if it “deals with a matter relating to the company’s ordinary business operations.” In 1998, when the Commission adopted amendments to Rule 14a-8, the Commission explained that two central considerations determine whether a proposal is excludable under Rule 14a-8(i)(7). The first consideration relates to when a proposal concerns tasks “so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight.” The second consideration relates to “the degree to which the proposal seeks to ‘micro-manage’ the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.” See SEC Release No. 34-40018 (May 21, 1998).

The SEC did not grant EOG a “climate-change exemption.”  The SEC agreed with EOG that shareholders are not empowered to micro-manage corporations or interfere with their day-to-day operations.  They do not have the right to vote for EOG to be something other than an oil company.

The SEC agreed with EOG:

The Proposal requests that the Company adopt company-wide, quantitative, timebound targets for reducing greenhouse gas emissions and issue a report discussing its plans and progress towards achieving these targets.

There appears to be some basis for your view that the Company may exclude the Proposal under rule 14a-8(i)(7), as relating to the Company’s ordinary business operations. In our view, the Proposal seeks to micromanage the Company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment. Accordingly, we will not recommend enforcement action to the Commission if the Company omits the Proposal from its proxy materials in reliance on rule 14a-8(i)(7). In reaching this position, we have not found it necessary to address the alternative bases for omission upon which the Company relies.

And sanity prevailed.

 

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82 thoughts on “Shocking! The SEC rules that activist shareholders can't force oil companies to stop being oil companies!

  1. I recently retired from a large US based coal company. I sat in a meeting with activist shareholders that wanted to the coal company to look at being something other than a coal company. Our shareholder relations person told them we were a coal company and were proud to be a coal company. End of discussion.

  2. Good. A bit of sanity.
    I think this rule should have been applied to aspects of the Climate Change Act here in the U.K. Particularly as otherwise, it is counter to the principle that no government whilst in office should curtail the actions of a subsequent government.

  3. If the activist shareholders could lead by example – say, ceasing exhaling all that CO2 and hot air, and just chill, just think of all the carbon that could be sequestered. Permanently.

    • This sort of stupor emerging is probably why the use of pot was originally banned.
      Innreality most of these whining greenie losers are smoking a doobie each night, then waffling pure-ass about ‘saving the world’ from humans, then they get into their car to go out and sate their munchies at a local cow+stuff ‘burger’ drive-through with a boxette of nuggets of mangled chicken-like stuff, then it’s back to the bong for some more deep ‘n meaningful foolosophe drooling.
      An inconvenient truth.

  4. So they can’t interfere with company operations through a shareholder petition, but they can go out to a worksite and directly obstruct company operations and put themselves and others in danger because judges will uphold a ‘necessity’ defense.

  5. “And sanity prevailed.” Too often missing from U.S. Federal regulation agencies’ decisions today.

  6. If the activist shareholders don’t like what the company does, they can always withdraw their money & sell their shares…that may make the company change direction….or not.

    • You betray a fundamental misunderstanding of the stock market. Any company’s share price, per se, matters not a whit to the company’s day-to-day operations. The only time the company really cares what the share price is if the company is selling shares it owns to raise capital for operations. That’s it. If some activist managed to acquire 25% of Exxon-Mobil and then dumped the shares on the market in an attempt to drive down the share price the following are the likely results:
      1. Other investors snap up the shares, knowing a good deal when they see one.
      2. Exxon snaps up its own shares, knowing a good deal when they see one. Sell later at a higher price for cheap capital.
      Won’t won’t happen is E-M collapsing due to reduced market valuation.

      • If a companiy’s stock goes down a lot and stays down, the board and executives will be hearing from the stock holders, as they (the stockholders) have just lost a lot of wealth.

      • That situation also opens up a company to being purchased by another company, which can definitely affect day-to-day operations.

    • ….or buy enough shares so that they can replace management with a management more receptive to their views.

  7. It’s too bad sanity has such variable lag times for response, like maybe the antagonists are counting on that for the show. It drives the sane rather crazy in the process.

    • The USA is the testing ground for the two latest pushes to attain control of all resources (Agenda 21/30). I live in Canada so lack some details. It appears, however, that the legal system is throwing up constant roadblocks to any change that the POTUS/team is trying to make. Stopping sue and settle really hurt the NGOs who used this tactic. The legal teams of state and municipal governments are trying to take up the slack through constant challenges, and they are assisted by some judicial playmates (mostly Harvard trained activists, and in left-wing jurisdictions).
      The second method of attack to gain control is infiltration of the financial markets to affect desired outcomes. This ranges from the IMF and World Bank refusing to capitalize fossil fuel energy (so in steps China), to pension funds etc selling off all stocks (divestment), to groups like this one, with shareholder minority groups infiltrating corporations and trying to change the internal rules. Most Western nations have a glut of lawyers looking for work. There also are plenty of very wealthy individuals who are willing to underwrite these systems. Frivolous lawsuits will create further chaos in government. If you are not familiar with the overload theory of Cloward & Piven, it would help to bone up. This, combined with Alinsky tactics, explains the game.

  8. What investor (shareholder) would want to decrease the value of their shares? The answer is shareholders shorting their own stock . This stinks of insider trading which is an SEC violation.

    • Why would shareholders short stock that they owned? Shorting would only be done by those who do not own the stock, except to borrow shares that are then sold back in a “short” operation.

      • Don,
        One can go Short on ‘covered calls’ and make quite a bit of money if you know the stock is going to go down. So As Keith said, this manipulation could be an SEC violation.

    • It is more likely that these shareholders are not really investors who are interested in seeing the company prosper. They are activists who have purchased a few shares to qualify as a shareholder to be able to attempt to put crap like this on the ballot for a shareholder meeting. They are more interested in gaming the system to try to put the company out of business.

      • Correct, they’re activists who own a tiny amount of stock. A shareholder might be able to change a company if they buy the whole company, though probably not through this resolution process.

  9. The resolution is poorly worded. It could also be interpreted as demanding that the company be more energy efficient. Drive high mileage trucks, use energy efficient lights, etc.
    Regardless, I agree that the resolution seeks to micro-manage the company.

    • The resolution is indeed poorly worded. The activist thinks that the emissions from the oil are the oil company’s emissions. The oil company is only selling gallons of product, and other people are deciding to burn some of it and create emissions.

      • Hang on – some percentage of the oil produced (and no small fraction) is turned into products like fertilizer, plastics, medicines, electric cable insulation, carpets, clothes, condiments and coatings.
        It is not as if the oil and gas are all burned. That would be a terrible waste and require that we hunt animals to tear off their skins which presently keep their insides in.
        The same applies to coal, though on a smaller scale.

  10. The activism at CALPERS and CALSTRS should not be confused with management expertise for an ongoing business. Leave those retirement systems and their Boards to their own financial sustainability issues.

  11. I think the best statement I have ever heard about what the oil industry does is by Scott Tinker from the Bureau of Economic Geology at UT. His statement is, ” the oil industry creates plentiful, affordable energy that helps lift people out of poverty”. I think that says it all and after working in this industry as well for the last 37 years, I have to say Im proud to be a part of it. Hoping for a few more years.

    • in addition, perhaps a little rebranding might make these people feel better. Instead of calling it Oil & Gas, we should call it what it really is: “Naturally occurring Bio-fuels”

  12. Unfortunately, the courts have ruled that it is perfectly fine for government regulators to micro-manage all companies.

  13. Sanity may have prevailed, but at a cost. And that cost was put on all the shareholders. At some point, the shareholders making these stupid proposals should be forced to pay the entire cost and a penalty for wasting corporate resources.

  14. “What the SEC has done here really feels like interfering with the marketplace, substituting their judgment for what shareholders and investors already think and do.”— Jonas Kron.
    Classic projection. What these climate kookaloos are doing is precisely what they claim the SEC has done. What a maroon.

  15. Green Energy “Leader” GE Falls Below $13 Today; Fools and their Money
    Public Pensions have lost fortunes of their member’s money pushing corporations to pursue an insane “Green Agenda.” The SEC should look into how Public Pensions are stacking Corporate Boards with activists that don’t act in the best interest of the shareholders. The Unholy Marriage Of GE And President Obama At The Altar Of Industrial Policy … Continue reading
    https://co2islife.wordpress.com/2018/04/03/green-energy-leader-ge-falls-below-13-today-fools-and-their-money/
    Trump Should Reconsider Red Team Blue Team Public Climate Debates
    It appears that through public pension ownership of Oil Company Stock, progressives have been successful in stacking/corrupting the boards of these companies with lackeys. President Trump should have the SEC look into how Public Pensions vote their member’s shares. Hiring CEOs that want to destroy the companies they run is hardly in the interest of the shareholders. Shareholders of these companies should demand the board represents their interests, not the progressives running their pensions. GE’s venture into the Green Economy Swamp has destroyed billions of shareholder value, and it may even be dropped from the Dow Jones Industrial Index.
    https://co2islife.wordpress.com/2018/04/01/trump-should-reconsider-red-team-blue-team-public-climate-debates/

    • Ah, but the public pension plans like CalPERS and CalSTRS aren’t really endangering their own money when they play these ideological agenda games as activist investors. That is because they know the taxpayers of California are ultimately on the hook for any pension payout arrears that arise from lower ROIs. It is always easy to play politics and gamble when you’re playing with OPM.

  16. The company could have banned all staff from using kettles, thus preventing the emission of the most “damaging greenhouse gas”, namely water vapour.

    • Might as well shut in every oil field EOG operates… If you’re going to switch off the coffee makers.

      • Having been in senior management in large national corporations, and sat in board meetings where idiot concepts are aired and sometimes passed, and seen how membership in the corporate board “club” is most times awarded to “connected” yes men of little accomplishments, and proposals are many times aimed purely at self enrichment at the cost of shareholders, I regularly vote against management proposals when exercising my stock voting rights. Have yet, however, to vote for any green proposals or any outside proposals aimed at real interference negatively with company operations. Sweet compensation and stock deals which cost shareholders money are my target. Many of these corporate managers are vastly over payed in any event. I know and have known many of them and know that of which I speak.

      • David,
        Actually a lot of these youngins out on the frac jobs these days only drink energy drinks. I find it harder and harder to get a cup of coffee on location.

  17. And my 40 years in the oil industry tell me that oil and gas companies grovel in the light of “whatever” public opinon is the flavor of the day, no matter how misguided that opinion is. And they do this to protect their brand instead of having the balls to fight poor science with facts. It upset me then and it upsets me now.
    And gas companies wil cut the throat of coal companies to gain any advantage in the market place, knowing full well that the science supporting CAGW is clearly not there.
    If oil companies had fought the efforts of the CAGW crowd in the beginning instead of putting the entire burden of fighting the CAGW crowd on the coal industry much of this craziness would not have occurred. Instead we rely on poorly funded (but effective) sites like Anthony Watts and Steve McIntyre to do battle because coal companies were put out of business. Thank you for your effort Anthony.
    So when these misguided enviro terrorists come after gas companies to stop fracing, gas companies don’t have any support from other fossil fuel companies to help fight back. And these gas companies do not want to upset “anyone” in order to protect the brand, so they try to fly under the radar. There is nothing worse in the current area of public opinion than having any money contributed by an oil company to your efforts because of the effectiveness of the enviro terrorists. This should have never happened. Oil companies should have fought back a long time ago. They should have been a lot more “Trumpian”.
    “Then they came for the Jews, and I did not speak out— Because I was not a Jew. Then they came for me—and there was no one left to speak for me.”

    • Thank you, SMS, well put.
      The coal folks “looked worse to environmental activists” than “big oil”. And folks had to fill their gas tanks, whereas the coal plant someplace far away made the electricity for their home.
      I used to fly over the strip mines in Appalachia and it was a horrible sight. Then, we demanded mitigation and restoration and …… So 40 years later I fly over same places and most are new, youthful forests.
      The way to shake some sense into these folks that believe in unicorns and think other people’s money will subsidize the solar plants, wind farms and wasteful ethanol farms is to flat cut off their petroleum products or raise their prices. Those here of my age remember the 70’s when we had odd-even lisence plate access to the gas pumps. Gas went from 40 cents a gallon to almost a buck. Small car purchases soared.
      Lastly, as others posted, sell shares and invest in Tesla! Yeah, that’ll work. Right?
      Gums sends….

  18. I have made comments here on WUWT threads of the serious danger that groups like CERES (see: ceres.org ) represents to our constitutional freedoms and free-market capitalism.
    The vampire squid tentacles stretch out from Ceres in vast hidden web of liberal billionaire donors, enviro NGO’s, public union goons (intent on shaking down taxpayers), and liberal states’ public sector pension funds to create and push socialist agendas by founding and funding investment groups like Trillium. What Trillium does then is, through legal means, obscure who is really controlling their shareholder activism.
    An in-depth analysis of the who’s and what’s at Ceres.org is quite chilling for those willing to dig into all the bio’s and sort through the institutional actors involved and follow various the slime trails.

    • What would be really useful is a list of the companies contributing,through their owners donating,to the green slime trail. I for one would make strenuous efforts not to buy those products or services provided by said companies but continue to support human progress by using sensibly priced energy – a definition which largely excludes wind.
      Despite the best efforts of the eco-liars the world continues to be a better place for most (but not all) the human race.

    • Joel another problem area along the same line is how foundations, turn over time, away from the original intent to even being against the very thing that started the foundation. The Rockefeller one comes to mind.

      • Two Rockefeller Trusts are listed as Ceres.org investors.
        Ceres has this investor statement:

        ”Ceres Investor Network members engage and collaborate on environmental, social, and governance issues to advance leading investment practices, corporate engagement strategies and policy solutions through working groups and shared learning opportunities, such as webinars and events. Ceres works with investors specifically to better manage carbon, water and supply chain risks, and ramp up global investments in clean energy and sustainable food and water systems.
        In addition, the Ceres Investor Network members pressure stock exchanges and capital market regulators to improve climate and sustainability risk disclosure, and opportunities to advocate for stronger climate, clean energy and water policies at all levels of government.”

      • CERAweek has actual energy industry experts.
        Organizations like CERES also claims to have energy “experts”. Their experts are litigation-experienced lawyers and liberal arts majors pretending to know about energy.

  19. David, when I was a Resource Company CEO, President, Director, etc and some shareholder activist called me up, and I could see they only had 100 shares, I always told them “buy more shares and call me back”. They never did.

  20. Soon … PETA will be demanding that Smithfield Pork Products stop slaughtering pigs … for … ewwwww “profit” and the feeding of ewwwww “meat eaters”

  21. Just in case you haven’t noticed—
    there are a ton of idiots in the investment business. They are normally employed as sales people but some of them infiltrate other areas of the industry, as well.

    • Yes, there are plenty of dumb investors, but these are activists who buy a few shares so that they can try to cause problems and advance a political, SJW, etc. agenda.

      • Craig: I have long felt that there should be a substantial minimum investment in order to propose action by the Company. A minimum or a million $ would cut out a lot of this cr*p.

      • “Whose bread I eat, his song I sing.”
        An analyst one the “sell side” (i.e., Goldman Morgan Merrill & Stupid or Alex. Brown) who tells the truth has a career life expectancy measured in minutes.
        😉

      • ^*&!!!$#@ spellchuck, again !!
        That should read “on the ‘sell side’ ” not “one the ‘sell side’.”

  22. As has been pointed out on other threads, producing oil does not create CO2, it is burning it that does.
    Given that injecting CO2 into wells is an established method of increasing production, it would be possible to have a CO2 negative oil company.

  23. ” . . . The first consideration relates to when a proposal concerns tasks “so fundamental to ̶m̶a̶n̶a̶g̶e̶m̶e̶n̶t̶’̶s̶ ‘Administration’s’ ability to run a ̶c̶o̶m̶p̶a̶n̶y̶ ‘University’ on a day-to-day basis that they could not, as a practical matter, be subject to direct ̶s̶h̶a̶r̶e̶h̶o̶l̶d̶e̶r̶ ‘Student’ oversight.” The second consideration relates to “the degree to which the proposal seeks to ‘micro-manage’ the ̶c̶o̶m̶p̶a̶n̶y̶ ‘University’ by probing too deeply into matters of a complex nature upon which ̶s̶h̶a̶r̶e̶h̶o̶l̶d̶e̶r̶ ‘Students’, as a group, would not be in a position to make an informed judgment. . . . “

  24. AXIOS is yet another agglomeration of disgruntled “journalists” unhappy and incomprehensible that the world hasn’t anointed them as King/Emperor/Dictator.
    At bottom, journalism is essentially professional gossipers and busybodies.

    • They weren’t athletic enough to be jocks, or studious enough to be nerds, or popular enough to be groupies, or weird enough to be arties. They eventually found their way to the school newspaper, where they wrote and took pictures of all the students who were more interesting than them.
      Now that they’ve grown up and got journalism degrees, you can almost feel the resentment in the tone of their articles sometimes.

  25. On the plus side for destructive activist shareholders, the stock may have been given a bump up making their holdings more valuable.
    In an argument years ago with an individual who drank too much Koolaid and was complaining about the terrible exploitation of the poor by greedy corporations (?), I said their shares were available to purchase by anyone -go buy some shares and complain at the AGM. If they happen to be making all this money, you could also set up a foundation and support the poor with your investment profits.
    I assumed this would give cause to actually cheer the corporations on. However, I see that it’s more likely for this kind of investor to cut his nose off to spite his face.

  26. This decision by the SEC should be a precedent for court cases that are demanding a company cease to do what they do as an enterprise. Indeed, are the governments of Oakland and San Francisco not interfering in the rights of oil company shareholders to profit from their decision to invest in Exxon, Mobil, BP…Why haven’t shareholders launched a class action suit against these cites and the state governments whose AGs are interfering in the rights of shareholders. Are all lawyers now just activist ones? Any legal types here on this thread?

  27. Simply question: Why are such activists investors in this sort of company, to begin with? Am I missing something? What? — they decided to invest in a profitable venture one day TO MAKE MONEY, and then, all of a sudden, one day they grew an activist conscience about CO2 and still think that they can MAKE MONEY in the original venture in which they invested?
    Hey, I want to invest in stock of a major pizza chain to make money on a venture that makes money, but, oh, I have this thing about cheese and all those calories and stuff.

    • You are assuming the reason they bought stock in the company was to make money. They’re activists, the reason they bought stock was as an avenue to push their agenda.

      • It’s a contradictory, contrived path, then, which would be intentionally malicious towards the fundamental legal objective or legal mission of the business, which they would have to know, if this were their strategy, … thus, making them hostile, seemingly, in the eyes of the law.
        If this were the case, then they would just be naive ignoramuses. If they knew the basis of the business, and if they intended to harass, systematically attempt to undermine, or otherwise interfere with the legal right of the company to act in accordance with this fundamental basis, then I could see a criminal case.

  28. Imagine if the SEC had permitted this activism.
    What a way to take out ones competition.
    And what a cheap way to do it.

  29. Is there really even such a thing as an “activist shareholder” ?? You are either an activist or a shareholder. They are mutually exclusive, if you have any sense. You have the freedom to invest in companies that you think will give you a “return on your investment”. Does it make sense to invest in a company that you don’t like the way it is run? Out of all the possible things to invest in, you can only find companies that you want to change? This is really an investment in a company in order to generate a news story about how they tried to silence YOUR CRITICISM OF THE CORE PRODUCT THEY PRODUCE!!!
    It makes about as much sense as “climate justice”. And probable invented by the same marketeers that create slogans with no meaning behind them to sell to those with no capacity to understand what words mean. The people that fall for this word mangling just assign value to words depending on how they “make me feel”.

  30. If they want to own shares in companies that are run by the shareholders, buy into a co-op. That’s what co-ops are for. Shareholders of a public company normally have a voice in the selection of who operates the company on their behalf.
    The difference is that of a representative or a delegate. The proposal was made as if the board members are representatives of the daily opinion of the shareholders. They in fact have already delegated the power to manage the affairs of the companies on behalf of the shareholders, a completely different management and operations model.
    In the US the difference is clearly shown by the House of Representatives operating at the whim of their electorate and financiers, and the Delegates that select the President. After the last presidential election there were calls to have the Delegates behave as Representatives, a violation of the Constitution, as amended.

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