In our engagement, we sought to understand how the board determined who should be lead director and how shareholder feedback weighed on the board’s decision-making process. Generally, the Vanguard funds will vote against shareholder proposals to separate the roles of CEO and chair, absent significant concerns about board independence, responsiveness to shareholders, or governance failings, among other considerations. Exxon’s recent changes to the lead director role and a change allowing shareholders that own 15% of outstanding shares to call a special meeting without the requirement for a court order are positive incremental steps to address structural governance issues that impede shareholder rights. In the recent proxy season, shareholders once again voted on the independent board chair proposal. With the likely recognition of the recent enhancements made to strengthen the lead director role, the 2020 proposal received a reduced 32.7% support. Although the Vanguard funds voted against this proposal in 2020 given these changes, we communicated to the company that the funds would carefully evaluate the proposal in 2021 with particular attention to evidence of independent oversight of management.
Over several years, Vanguard has raised concerns with Exxon’s independent oversight, including the board’s lack of industry expertise. Effective oversight of corporate strategy and material risks requires deep industry knowledge. Even with enhancements to the board’s independent leadership, Vanguard remains concerned that without the appropriate level of industry expertise, directors will not be able to challenge management on important governance and risk management topics. We look forward to continued engagement with the company—particularly with independent board members—about these critical matters.