The New York Times Magazine (pg. 22)  [Printer-friendly version]
August 12, 2007

RESOLVED: PUBLIC CORPORATIONS SHALL TAKE US SERIOUSLY

By Dashka Slater

The ring tone on Sister Patricia Daly's cellphone is the "Hallelujah"
chorus from Handel's "Messiah," which makes every call sound as if
it's coming from God. On the particular May afternoon, however, David
Henry, who handles investor relations for the ExxonMobil Corporation,
was on the line. Henry wanted to know if Daly planned to attend the
annual shareholder meeting later that month -- a rhetorical question,
really, since Daly had been at every one of them for the past 10
years. At each she posed roughly the same question: What is
ExxonMobil, the world's largest publicly traded oil company, planning
to do about global warming?

Daly's order, the Sisters of Saint Dominic of Caldwell, N.J., owns
about 300 of the 5.5 billion Exxon Mobile shares outstanding, but she
has used those few shares to keep the company talking about an issue
that it would just as soon ignore. In a few weeks' time, the company's
millions of shareholders would be able to vote on a resolution she
wrote, which asked ExxonMobil to set a firm date for reporting on its
progress to reduce greenhouse-gas emissions from both its operations
and its products. The board opposed the resolution, as it did each and
every one of the 20 resolutions related to climate change submitted
over the past 10 years, but Henry wasn't calling to debate the issue.
That had already been done, ad nauseam, in countless meetings and
phone calls between representatives of the company and its dissident
shareholders, and it would be done again at the annual meeting on May
30. This was a courtesy call.

Daly assured Henry that she would be there to present her resolution
in person, and then she smiled at the phone and made small talk, first
about Ford Motor Company's annual meeting, which she attended earlier
that day, and then about the weather.

"Very pleasant," she remarked afterward. "We can laugh about a few
things." Then her mouth turned downward in a gesture that managed to
convey simultaneously humor, pathos and wry acceptance. "At one point
he said, 'Well, global warming can't be going on because we just had
an ice storm here in April,' " she related. "I mean, can we review
that global warming means that the upper atmosphere is warming, which
is creating really weird and severe climate incidents -- like ice
storms in Dallas in April?" She fell back in her chair, clutching her
head in astonishment.

For a certain kind of shareholder, particularly a religious
shareholder, ExxonMobil poses a quandary. By every conventional
measure, it is an exemplary investment. The company made $39.5 billion
in profits in 2006, earnings that keep the value of its stock at
around $85 per share and make it the most profitable American
corporation, with a market value that is larger than the national
budget of France. It is also the most technologically advanced of all
the world's oil companies, and it has an admirable record of workplace
safety and spill reduction.

But these days, corporations are increasingly judged not only by their
quarterly earnings but also by their commitment to social and
environmental values, and by governance standards like openness and
accountability. By these standards, ExxonMobil is a mess. The company
retains a reputation for environmental skullduggery that dates from
the Exxon Valdez spill in 1989. Its skeptical stance on global warming
has earned it the disapprobation of everyone from the Royal Society,
Britain's premier scientific academy, to Senators Olympia Snowe and
Jay Rockefeller. The company is known to be insular and hostile to the
press (its representatives declined to be formally interviewed for
this article), and its rumored and oft-denied participation in Dick
Cheney's Energy Task Force did nothing to increase its popularity.

As a result, ExxonMobil has the dubious distinction of outperforming
the competition in both the size of its shareholder dividends and the
intensity of its shareholder discontent. This year, the company faced
15 separate shareholder resolutions -- many more than most companies in
the nation -- on topics that include executive compensation and
shareholder rights as well as global warming. For Daly, who has spent
30 years persuading companies like Dow, General Electric, Nestle,
Ford, Pepsi and General Motors to do things they didn't want to do,
ExxonMobil is the great white whale of multinational corporations,
unparalleled in size, power and elusiveness. "I've never worked with a
company this long with so little progress," she says.

Daly, who is 51, is also the executive director of the TriState
Coalition for Responsible Investment, a regional alliance of Roman
Catholic investors who, like the Caldwell, N.J., Dominicans, are using
the power of their pension funds to pressure companies to take action
on issues as varied as genetically modified organisms and health care
for employees with H.I.V. The eldest daughter of a mother who was a
New York City schoolteacher and a father who worked in logistics for
international freight, Daly didn't choose the religious life with the
expectation that she would be spending her time crossing swords with
corporate C.E.O.'s. But in 1977, while she was still a novice, she
learned about attempts to unionize JP Stevens textile mills, a bitter
decades-long struggle that would eventually be portrayed in the movie
"Norma Rae." The Caldwell Dominicans happened to have JP Stevens stock
in their retirement fund, and so Daly went to the annual meeting to
tell company executives what she thought of their behavior. At the
meeting, she discovered that there was a network of religious
shareholders called the Interfaith Center on Corporate Responsibility;
it used the stocks in its members' portfolios to pressure companies to
address issues like poverty, racism and the environment.

Daly returned to the convent thrilled to have discovered this new kind
of social movement. "I said, 'There's a whole network here, shouldn't
we be part of it?' " she recalls. "And they said, 'O.K., good, that's
your job.' " In the years since, she has been involved in campaigns
that confronted Nestle over its infant formula and pressured G.E. to
clean up PCBs in the Hudson River, among others.

Daly doesn't pick the investments for her convent's $15 million
retirement fund -- that's done by its financial advisers, who are
prohibited only from investing in the top 25 weapons manufacturers and
the makers of abortifacient drugs and devices. Daly's job is to flag
the companies in the portfolio whose behavior, in her view, needs
improving. "The Dominicans are an order of preachers," she says. "I do
it in boardrooms, and those kinds of inner arenas. It's not always
public preaching. But preaching is really the mission."

Just about anyone who has owned a given company's stock for at least a
year can file a shareholder resolution. As of June 15, shareholders
had filed 1,151 proxy resolutions with U.S. companies in 2007, 361 of
them on social issues. These resolutions, which address issues like
domestic-partner benefits and the disclosure of political
contributions, represent a significant shift in the way that Americans
think about the stocks they own and pose a direct challenge to the way
corporations are used to operating. While shareholders are technically
the owners of a company, corporate executives have tended to view them
the way a symphony orchestra might view its subscribers. The last
thing the symphony expects is for its concertgoers to start giving the
oboist pointers on her technique, or to suggest that the conductor
choose a different program of composers.

Yet that is exactly the sort of thing that has been happening at
shareholder meetings nationwide, thanks to the fall of Enron, the rise
of socially responsible investment funds, a new sense of mission on
the part of institutional investors and an Internet-age impulse toward
participatory democracy. At Citigroup's annual meeting in April, for
instance, Chairman Charles Prince listened patiently for nearly three
hours while shareholders sounded off on subjects ranging from business
strategy to tooth decay.

It's fair to ask, of course, if shareholder activists are promoting
interest-group politics or economic goals when they ask companies to
take action on global warming. While environmentalists have long
framed the issue in terms like "the health of the planet" or "the
future of our children," activists like Daly now talk about "risk" and
"long-term profitability." Their argument goes like this: climate
change poses an enormous risk to nearly every sector of the economy.
It is therefore prudent to plan for both its environmental impacts and
the inevitable regulatory constraints that are coming.

Daly does have a vested interest in keeping ExxonMobil profitable --
her own retirement depends on it. But her approach is undoubtedly a
rhetorical strategy as much as a financial one; return on investment
isn't what keeps her on the phone with people like David Henry. "In
any conversation with a company," she admits, "it's clear that I'm
there because of a faith commitment."

Yet global warming does seem to be an area in which social and fiscal
concerns overlap. Recent reports by Goldman Sachs, Citigroup and
Lehman Brothers have reinforced the notion that climate change has the
potential to affect a company's bottom line, and shareholder
resolutions have been remarkably effective at getting companies to
take global warming seriously. After the Connecticut state treasurer's
office filed three consecutive climate resolutions with American
Electric Power, the nation's single-largest producer of carbon
dioxide, the company agreed in 2004 to study the impact on its
operations of various carbon cap-and-trade proposals, whereby
companies must either limit their carbon emissions or purchase
emissions credits from other companies that pollute less. Today
American Electric is one of the companies calling for mandatory carbon
constraints. Other companies singled out by shareholder activists,
like Home Depot, Ford, Prudential, Cinergy, Chevron Texaco, Apache and
ConocoPhillips, have variously agreed to disclose their greenhouse-gas
emissions, study the impact of climate change on their businesses,
invest in renewable energy sources or support a mandatory carbon cap.

The exception, as Daly notes, is ExxonMobil. For years the company
denied that global climate change was occurring. According to a
Greenpeace report in May, ExxonMobil funnels more than $2 million a
year to groups that dispute the reality of global warming. The
company's current C.E.O., Rex Tillerson, made headlines in February
when he admitted that the risks from climate change "could prove to be
significant," but he continues to emphasize the uncertainty of the
science. In May he said: "I know people like to boil it down to
something very simple -- the polar ice caps are melting, the planet is
seven-tenths of a degree centigrade warmer. It's really not that
simple of an equation." And while BP, Shell and ConocoPhillips have
joined the United States Climate Action Partnership, which is lobbying
for mandatory carbon limits, and are investing in renewable energy
sources like wind, solar and biofuels, ExxonMobil remains coy about
which, if any, carbon constraints it would support and has stated
unequivocally that the company will not be putting money into
renewables.

Whether the company's seeming indifference to the impact its emissions
have on global climate change will affect its profitability remains to
be seen, but a growing number of analysts suggest that it could. A
recent Citigroup report, "Climactic Consequences: Investment
Implications of a Changing Climate," noted that companies that
"voluntarily adopt climate friendly policies ahead of competitors"
might have an advantage over those that wait for regulation before
they act. "One could argue," the report remarked parenthetically, that
BP, "which has been focusing on climate issues for many years, and
which regularly shows up at the top of surveys of 'climate-friendly'
companies, is relatively well positioned, compared to ExxonMobil,
which has funded pro-carbon advertisements."

That seems to be the concern of a growing number of shareholders. In
1997, when a Capuchin priest, the Rev. Michael Crosby, filed the first
global-warming resolution at ExxonMobil, a mere 4.6 percent of the
proxies were in favor of it. By 2005, a resolution asking the company
to explain how it would meet greenhouse-gas-reduction targets in
countries that had adopted the Kyoto Protocol garnered 28.4 percent of
the vote.

Given Tillerson's wary admission of global warming's potential risk,
and the business community's growing interest in the issue,
shareholder activists were feeling cautiously optimistic about what
might happen at this year's annual meeting. Daly, too, was thinking of
changing her strategy.

"There was a gentleman, a retired man, who followed me out of the
ExxonMobil meeting last year," she reflected. "He said: 'You know,
Sister, I've been listening to you for a long time. We get the
science, and we get the investment piece. You should be talking about
their moral responsibility.' "

Daly looked out the window for a moment, as if the elderly shareholder
might be lurking below, and the corners of her mouth ducked downward
again. "I lost sleep over that comment," she continued. "I mean, I'm
an investor. I know I get play because I'm this nun, and there's a lot
of intrigue around that, but I'm no more interesting and far less
qualified than a lot of other people I work with. And you know, I
don't play the God card. But basically, he was saying, 'You should
play the God card.' "

ExxonMobil has been on the defensive about global warming long enough
to have developed a highly nuanced statement of its position. At a
press briefing on the issue that was held before the annual meeting,
Ken Cohen, the vice president of public affairs, allowed that
something definitely might be going on: "Is climate change a risk that
should be taken seriously? The answer is yes... there is a risk
that human activity is contributing to climate change."

But while the dangers associated with climate change include
catastrophic floods, hurricanes, drought and famine, there is little
risk that gasoline will stop being a profitable commodity any time
soon. That, from ExxonMobil's point of view, is all that matters.
Between 2000 and 2030, ExxonMobil expects global energy demand to grow
by 60 percent, driven largely by the developing world. Given that
renewables are still in their infancy, Cohen argues that traditional
fossil fuels are the only energy source that can meet that demand. By
2030, Exxon projects, fossil fuels will still be supplying about 80
percent of the world's energy needs.

ExxonMobil's projections are based on studies from reputable sources
(the International Energy Agency and the U.S. Department of Energy),
and the company has factored in slightly higher automotive efficiency
standards -- 30 miles to the gallon, rather than the current 27.5. But
it's clear that when ExxonMobil executives look ahead to the next
quarter century, they see a world that operates much as it did in the
previous quarter century. Given ExxonMobil's profits over the past few
years, that's a pretty comforting view, and one that doesn't encourage
any radical change of course, no matter what people like Patricia Daly
say. Climate change "is just another risk that we have to understand
as best we can and respond to in a way that protects the shareholder
value," Tillerson would explain at the annual meeting. "So I don't
think it introduces any greater or lesser threat than a whole host of
other risks that we manage day to day and that have been part of this
business for decades."

The fact that a corporation can preoccupy itself with quantifying the
financial risks of a global catastrophe while ignoring the human and
environmental ones is what inspired a tall, courtly Boston Brahmin
named Robert A. G. Monks to begin advancing the notion that
shareholders use the power of their proxies to influence corporate
behavior. Monks, who was a founding trustee of the Federal Employees
Retirement System during Ronald Reagan's administration, responds to
Tillerson like this: "The notion that a company that creates a problem
is exempted from trying to find a solution to that problem is like
being in the elephant business but not having anyone in charge of
going behind the elephant and cleaning up after it."

The son of an Episcopal clergyman, Monks has been a partner in a
corporate law firm, a venture capitalist, a oil-and-gas-company
executive and a director of 10 publicly held companies. He is, in
other words, a consummate insider, or would be one, had he not
happened to stop by the Androscoggin River in 1972 while campaigning --
unsuccessfully, as it turned out -- as a Republican candidate for a
United States Senate seat in Maine. The surface of the river glistened
with a six-foot layer of foam, the effluent of the nearby
International Paper Company.

For Monks, the foam came to symbolize all that was wrong with the way
the modern corporation functions in society: none of its owners feel
responsible for its actions. The dispersal of ownership through
millions of shares, he argues, is the institutional equivalent of the
tragedy of the commons: each shareholder is happy to reap his share of
the profits, but no one feels responsible for the behavior of the
company as a whole. His solution has been to try to make corporate
boards more accountable by encouraging them to have directors who are
truly independent, rather than being the friends and associates of
management. He has done this in a variety of ways -- by writing books,
by pressuring companies from within and by founding various corporate
governance institutions, among them Institutional Shareholder Services
and the Corporate Library. In 1991, he went so far as to run for the
Sears board himself, a move that inspired Sears to spend $5.5 million
to defeat him.

Sears wasn't the first company whose board Monks nominated himself for
-- he also tried nominating himself for the Exxon board in 1987. The
company didn't respond to his letter, and he chose not to pursue the
matter. Yet as time went on, Monks came to believe that Exxon was "the
symbol of a reality that nobody in the reformist area wanted to deal
with" -- a company that performed exceptionally well as a business and
an investment yet failed to take responsibility for its greenhouse-gas
emissions, which Monks sees as the 21st-century equivalent of foam on
the river.

Monks's solution was to submit a resolution that would separate the
positions of chairman and C.E.O., something that has been done at BP
and Royal Dutch/Shell. Monks argues that an independent chairman would
be able to raise questions about ExxonMobil's position in the world
that will never otherwise be asked, much less answered, questions
like, "Why is our company the one with the bull's-eye on its chest?"
As it stands, he says: "The board is just there as the parsley on the
fish. You're really talking about, when you have a combined chairman
and C.E.O., a dictatorship."

Monks has submitted his proposal six times, but it has gone before the
shareholders only four times, having been thrown out the other two by
the Securities and Exchange Commission. Nonetheless, it has gotten a
greater percentage of the vote each time it has been on the proxy
ballot, he says, up to about 35 percent last year.

Getting a majority of the vote is an enormous task, in part because
the number of shareholders is so vast. About 2,000 institutional
shareholders and 2.5 million individuals can vote. At ExxonMobil,
about 85 percent of the shares are voted, which is slightly higher
than average. That's a pretty good turnout compared with that of the
last presidential election, when only about 64 percent of the nation's
registered voters made it to the polls, but in most other ways,
corporate democracy is far from democratic. Shareholder votes aren't
binding. They are advisory, which means that boards are free to ignore
them. Shareholders have even less say over the boards themselves --
most directors are handpicked by management and run unopposed.

In truth, most shareholders have very little real power over a
company's behavior. "What we have to do is throw gorilla dust," Monks
says. "When two gorillas get ready to fight, they throw dust at each
other. I'm in the gorilla-dust business, and I'm in the gorilla-dust
business not because I like it, but because it's the only game in
town."

Shareholder activists began arriving in Dallas on the afternoon of May
29, and by evening, they were sitting in the lobby of their hotel
planning the next day's strategy. Daly was clearly delighted to be
reunited with longtime colleagues in the struggle, including Michael
Crosby, the Capuchin priest, and Tracey Rembert from the Service
Employees International Union. As they settled into the hotel's
brightly colored armchairs, they began telling stories of past
meetings. The stories tended to star Lee Raymond, the former chief
executive, who was openly hostile to any discussion about global
warming. One year's meeting featured the Rev. Robert Sirico, whose
Acton Institute was a regular recipient of ExxonMobil donations,
testifying that Daly and Crosby were trying to overthrow the free-
enterprise system. "I always had a headache leaving that meeting,"
Daly said. "You'd walk away and say, 'There's got to be another way.'
*

This year was expected to be far more cordial. For one thing,
Tillerson is more genial than his predecessor, and he impressed
everyone with his politeness the previous year. In addition, it was
clear that mainstream shareholders no longer see climate resolutions
as recommendations from the company's lunatic fringe. To everyone's
surprise, the three largest proxy advisory firms, I.S.S., Glass Lewis
& Company and Proxy Governance, had all recommended that their clients
vote in favor of Item 15, which was Daly's resolution. A number of
state pension funds were on board, including Calpers, which owns 30
million shares, and Stanford University had announced that its
endowment would be voting its proxies in favor of the resolution as
well.

But Crosby reminded them of some bad news. ExxonMobil had changed the
rules of engagement, reducing the amount of time for discussion of
each resolution from 10 minutes to 3. That didn't leave much time for
the shareholders to make their case.

"The only other company like this is Reynolds," sighed Crosby, who
spends much of the proxy season battling Big Tobacco.

Rembert nodded. "I tell everyone, if you can survive this meeting, you
can survive anything."

The shareholders began going over their arguments. They raised the
question of whether the developing world was going to be as profligate
with petroleum as the United States had been. They talked about how
Detroit automakers lost their competitive advantage by banking on gas
guzzlers and suggested that Exxon might find itself in a similar
position. They discussed why ExxonMobil seemed intent on torpedoing
its own reputation and speculated as to whether there really was any
more cheap oil to be had.

The prospect of feverishly trying to cram several hours' worth of
arguments into three minutes was deflating, particularly when most of
the proxies had already been voted.

"They know, going into the meeting, what the vote is," Crosby said.

Daly, who was one of the few people in the room whose energy and humor
hadn't flagged as the hour got later, explained that the real work of
a shareholder activist happens before and after the proxy season, in
meetings with company representatives. "This is the theater," she
said.

Crosby nodded. "If you know the Catholic tradition, this is the
liturgy," he said. "It's all happened before, but it's worked out in
ritual."

Daly laughed. "You might have to change the homily," she said.

It was precisely 9 o' clock the next morning when Tillerson called the
annual shareholder meeting to order. About 450 shareholders filled the
seats of the Morton H. Meyerson Symphony Center concert hall. Many
were retirees -- elderly men in turquoise-encrusted bolo ties, elderly
women in red wool suits. Tillerson stood behind a large, box-shaped
lectern, an imposing man with thick eyebrows, a square jaw and a deep
voice. He was, as predicted, polite throughout, but the new time
limits made it difficult for the shareholders to say much of anything.
Monks, Crosby and the others raced through their remarks, keeping one
eye on the panel of green, yellow and red lights that governed the
time.

The 11 members of board sat in the balcony, listening impassively. I
wondered what they made of the shareholders who had spent so many
hours trying to shape an argument that would persuade them, and so a
few days later, I called a board member, Dr. Reatha Clark King, and
asked her. "As a board member, I'm thinking, this group or this
individual has invested their resources to show up, to ask their
question or to make a point," she told me. "I process the information
eagerly, with the thought: What could I learn from this?"

Did that mean that board members were likely to be persuaded by
shareholder arguments? King -- who agreed to speak only in general
terms about the job of a board member -- said it wasn't that simple.
After 10 years on the board, she figured she knew more about the
issues than the shareholders, and wasn't her expertise the reason
she'd been selected for the board in the first place? "You're working
to maximize shareholder value," she said. "It's very different from
the political environment, where you are persuaded because you are
afraid of being voted out by your constituents." (King, like all the
members of the ExxonMobil board, was nominated by the company and ran
unopposed.)

And so the morning continued, in short bursts of truncated rhetoric
that were received with polite silence. At last, Daly stood to
introduce Item 15. She began, as she usually did, by talking about
shareholder value. "We're the most profitable company in the history
of the planet, but what will be our long-term health when we are
really faced with the regulatory and other challenges around global
warming?" she asked. She praised the company's resourcefulness and
suggested that a company like ExxonMobil could achieve anything it
wanted. Then she played the God card.

"I truly believe that every one of us has a very special vocation and
we're here on this planet for a reason," she said. "We are now, this
company and every single one of us, challenged by one of the most
profound moral concerns. And we have the wherewithal to respond to
that. We all want to be able to tell the children in our lives and
have those children tell their grandchildren that we were part of the
solution, not part of the real problem.... And that's why we want
to be able to have our company show us how we are responding to the
true moral challenge, the great work for the future of this planet."

Tillerson didn't respond at the time, other than to say that the
board's reasons for recommending against the proposal were explained
on Page 61 of the proxy statement. But at the post-meeting news
conference, I asked him whether he agreed with Sister Daly's assertion
that ExxonMobil had a moral responsibility to find a solution to
global warming.

"We know that we have social and moral obligations as a corporate
entity just as we all have personal social and moral obligations," he
replied. "First and foremost our obligation, because of the business
we have been in for more than a century, is to continue to provide
reliable and affordable energy to the world to allow the world's
economic growth to continue."

Tillerson is an intelligent man, and a fierce one, and for the last
half-hour of the shareholder meeting he fielded a host of very pointed
questions about ExxonMobil's stance on global warming and its refusal
to invest in alternatives to fossil fuels.

He spoke as a man whose company excels at extracting oil from
difficult and faraway places so that people can fill their gas tanks
with it, and who continues to believe that this is a useful and
necessary service.

"The world, like it or not, is going to have to live off fossil fuels
for the foreseeable future," he said in response to a question from
John Wilson of Christian Brothers Investment Services. "It's fine if
people want to find ways to replace them.... We're not threatened
by that at all. But we're not in that business. We're in the business
of oil and natural gas. We're going to work on the things that we know
how to do."

By now the votes had been counted, and the results were in. Robert
Monks's plan for separating the positions of chairman and chief
executive received 40 percent and Patricia Daly's greenhouse-gas-
reduction proposal earned 31 percent of the ballots -- about 1.4
billion shares. It was the largest number an ExxonMobil climate-change
proposal had ever received.

Afterward, the shareholders went out for Mexican food, as they do
every year. At the restaurant, Tracey Rembert of the Service Employees
International put her laptop on the table and read aloud news stories
about the meeting. They all hit two themes -- ExxonMobil's staggering
profits and the flak that the company was taking over global warming.
Most portrayed the votes as a resounding defeat for shareholder
activists, but the activists themselves saw victory in the fact that
the resolutions made the news in the first place.

"The truth is, we've collectively stamped this problem on Lee Raymond
and Rex Tillerson's obituary," gloated Kert Davies, research director
for Greenpeace. "It's so embedded in how they're perceived, it's more
than a P.R. problem, it's a liability."

"I found the board was listening more," John Wilson said. "Some of
them were actually leaning forward."

In a few days the shareholders would begin strategizing again, drawing
up a list of demands for a fall meeting with ExxonMobil officials. For
now, they took pleasure in finding a few small indications that their
message had been heard, if not by Tillerson, than perhaps by the
board, or at least the press. They had done better this year than
last, and hopefully they would do even better next year.

At the far end of the table, Daly was already talking about the next
shareholder meeting on her calendar -- General Motors, the following
week. To her mind, the day had been a success. "I always put it in the
context of here's a company that's making oodles of money for their
shareholders and everyone should be thrilled," she said. "So to walk
away with a third of the vote was just a remarkable win."

============

Dashka Slater has written for Salon, Mother Jones and More, among
other publications. She is also the author of "The Wishing Box," a
novel.

Copyright 2007 The New York Times Company