CalPERS’ Convenient Excuse

CalPERS’ Convenient Excuse

The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers.  I am sharing it here today because I thought it might be useful to some of you.


CalPERS Does What CalPERS Does

The other day, the good folks at CalPERS – the nation’s largest public pension fund – announced that they have no choice but to vote against ALL 12 of the members of the ExxonMobil board of directors and its CEO at the company’s upcoming annual meeting.  They don’t want to do this, mind you.  They have to.  Exxon has left them no choice.  Or so they say:

When you own shares of stock in a publicly traded company, you have a vested interest in how that company is run and whether its leaders are doing all they can to ensure lasting financial success.

You have a right to have your concerns heard by corporate directors and executives. They work for you….

Now, decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful U.S. corporation, designed to punish two small groups that dared to speak truth to power. If successful, the legal action could diminish the role—and the rights—of every investor in improving a company’s bottom line….

That’s why on May 29, 2024, CalPERS will cast our shareholder votes in opposition to all 12 members of ExxonMobil’s board of directors and its chief executive officer….

We don’t take this action lightly.

On the one hand, I don’t doubt for a second that CalPERS’ CEO Marcie Frost, Board President Theresa Taylor, and the rest of the gang take this seriously.  Voting to trash the entire board and CEO of the world’s largest oil company (by market cap) is, indeed, important to them.

On the other hand, it’s pretty clear that CalPERS’ vote is not really about “shareholders” at all.  And nor is it about proper stewardship of investor assets or anything else they would like us to think it’s about.  It’s strictly about CalPERS, its leaders, their political predilections, and their longstanding vendetta against Exxon.

The excuse explanation that CalPERS has given for its decision is both trite and ironic, given its leadership structure and its decade-long overt effort to promote public policy over shareholder priorities.  That explanation is also easily discredited for the same reasons, more than a handful of commentators have demonstrated.  Matt Cole, the CEO and CIO of Strive Asset Management, offered what is likely the most cutting response to CalPERS, one that is especially poignant, in light of Cole’s career trajectory:

Given the 16 years I spent at CalPERS and my current role, I’m in a unique position to unpack this….

Arjuna Capital is an investment firm with three pillars: Divest from Fossil Fuels, Invest in Solutions, and Engage in Corporate Change. Given their first pillar is to divest from fossil fuels, a natural question with their Exxon shareholder proposal is if Arjuna is a real shareholder of Exxon trying to maximize the long run returns of Exxon. Exxon rightly calls out they are not, noting “Arjuna Capital and Follow This do not own any direct shares” of Exxon. So why would Arjuna file the proposal? To *kill* Exxon Mobil via shareholder activism, where they note “you can foster real change in corporate behavior on a range of issues, from climate change to racial and gender equity.”…

Exxon rightly calls this out in their lawsuit, noting “We believe activists with minimal or even no shares should not be permitted to re-submit proposals that do not grow long-term shareholder value.”

If Arjuna bought minimal shares of Exxon solely to push a costly to defend and shareholder value destructive proposal, why would CalPERS take such a bold stance of voting against the entire board of Exxon and its CEO when Exxon fights back? Answer: Because CalPERS is a political organization. The majority of the board of directors at CalPERS aren’t elected by the pensioners, but directly appointed by the elected political class of California….

Lastly, CalPERS is investing heavily in the energy transition both in public and private markets. There is a strong case to be made that even if CalPERS damaged Exxon via a shareholder proposal, it could benefit CalPERS other holdings.

In short, those who run CalPERS are doing everything they can to expand the reach and impact of their political values.  They have decided that Exxon is an enemy, and they have done so specifically based on the values they embrace, rather than on any inherently conflicting interests.  In truth, CalPERS and Exxon share a great many interests – not the least of which is a paramount concern, as fiduciaries, for the financial well-being of their stakeholders.  CalPERS has chosen, however, to elevate its political values – in this case, a fanatical belief in the wickedness of fossil fuels – over those interests and has, therefore, consciously transformed a corporation with mutually beneficial interests into a sworn enemy.

Recall that not only did CalPERS vote with Engine No. 1 in 2021, when the tiny hedge fund successfully engineered a partial hostile takeover over the ExxonMobil board, but it also publicly cheered the effort and allowed Engine No.1 to use its endorsement as a testimonial.

Recall that CalPERS secretly coordinated its efforts to support Engine No. 1 with investment activists CERES and Climate Action 100+, which prompted House Judiciary Committee Chairman Jim Jordan to accuse CalPERS of acting as part of a “cartel.”

Recall that CalPERS is one of the original supporters of ESG and has long used its proxy votes to attack fossil fuel companies, dating back at least to 2005, when it “supported a resolution at ExxonMobil asking for reporting on compliance with the Kyoto Protocol.”

Recall that as long ago as 2017, CalPERS introduced its own shareholder proposal “requesting that ExxonMobil publish an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies” and officially labeling the company a “systemically important carbon emitter.”

Recall that as of 2022, CalPERS stated that it “will vote against directors on climate grounds.”

Finally, recall as well that CalSTRS – CalPERS’ sister institution in the California public pension system – has been waging an overt battle against ExxonMobil for years and that it voted against all 12 of the company’s directors in 2020, long before the suit against Arjuna and Follow This.

To put it bluntly, the Exxon lawsuit is nothing more to CalPERS than a convenient excuse to do what it has always done, only more publicly and more smugly.  Try as it may, CalPERS cannot justify anything in its statement or its actions by an appeal to “shareholder” rights or fiduciary responsibility.  Its past behavior clearly invalidates such an appeal, even as it exposes its leaders as mendacious and menacing political actors.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.