Going forward, institutional investors may find it more challenging to lend credibility to the counsel provided by Canadian-owned proxy advisory firm Glass Lewis. In theory, proxy advisory firms help institutional investors navigate risk and make more informed decisions on board proposals. But, as evidenced by the recent vote on ExxonMobil’s board, Glass Lewis has recast its brand as being more about leftist ideology than fiduciary responsibility.
For years, activist investor groups had abused the shareholder proposal process by filing proposals aimed at dismantling ExxonMobil’s core energy business. The last straw came when groups that didn’t own any direct shares made a demand so radical that ExxonMobil would not only be responsible for self-destructive emissions reductions, but for ensuring that its customers up and down the value chain acted likewise.
Finally, ExxonMobil initiated a lawsuit in January against the groups to stop activists whose primary goal is to destroy, rather than increase, shareholder value. ExxonMobil’s legal defense of their business marks one of the most significant pushbacks against ESG and woke corporate activism over the past two years. The energy producer’s resolve is giving other businesses the courage to stand up to ideologically motivated bullies who are pushing to shutter any business at odds with their worldviews.
Glass Lewis’ reaction to the lawsuit offered a clear defining moment as to the nature of proxy advisor. Is it indeed a fiduciary or has it morphed into a political entity?
ExxonMobil generated strong earnings of $8.2 billion and $14.7 billion of cash flow in the first quarter of 2024 alone and profits were up. In short, it had turned in a stellar performance for shareholders. And yet, Glass Lewis recommended that investors vote against ExxonMobil’s lead independent director Joseph Hooley’s re-election at the annual shareholders meeting, labeling the company’s pushback against the activists “unusual and aggressive tactics.”
No other proxy advisor followed suit. A letter from 21 state financial offices to 18 asset managers ahead of the vote urged them to not act contrary to their fiduciary duties. None did, including BlackRock CEO Larry Fink, notorious for his ESG zealotry. In prioritizing ideological factors above maximizing its clients’ returns, Glass Lewis exposed itself as having cast fiduciary responsibility and shareholder primacy to the wind.
Tellingly, Glass Lewis aligned with fellow travelers including left-leaning CalPERS trustees, activist blue state treasurers, and ESG-focused pension group Wespath in drumming up anti-Exxon votes. In the end, Glass Lewis’ effort was a complete failure, despite its best efforts. Hooley and the rest of the board were reelected by wide margins at the May 29 shareholders meeting.
While its botched board room coup has dispelled any pretense, Glass Lewis still describes itself as being “unbiased.” Its sales force recently portrayed the company as the “red state alternative” to larger proxy advisory service ISS. Yet, when multiple state officials within our organization reached out to Glass Lewis for politically neutral guidelines without an ESG component, they came away disappointed.
Even as it was trying to have it both ways as the “red state alternative,” Glass Lewis quietly adopted a gender policy based on identity rather than biology. The company now recommends voting to punish corporate committee chairs, not for having an insufficient number of women in leadership positions, but for a paucity of those who do not identify as a man. The example illustrates just how extreme Glass Lewis has become, even within an industry that has become increasingly captured by ESG ideology. But hold onto your hats, because its latest move boggles the mind.
When Bob Mann was running Sustainalytics (Morningstar’s ESG rating service), doing business with Israel negatively impacted a company’s ESG score. Morningstar found itself under investigation by no fewer than 20 states for violating state laws against boycott, divestment and sanctions activity targeting Israel. Sustainalytics’ processes and products were “infected by systemic bias against Israel,” as one critic put it. Outrageously, Glass Lewis hired Mann as its new CEO in May.
Institutional clients looking for politically neutral guidance on voting options should think twice before considering Glass Lewis. In fairness, it can’t be said that ISS offers ESG-free guidance, either. And Egan Jones’ newly announced partnership with BlackRock has fallen short of hope that they would stand out as an ESG-free alternative for red states.
Companies embracing free-market solutions are also the cleanest, as one study points out, underscoring the need for services unencumbered by ESG nonsense. So, if any entrepreneurs are listening, there is an unfilled niche in the marketplace waiting for you.
Derek Kreifels is the CEO of the State Financial Officers Foundation.
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