Last year, almost a third of shareholders voted against ExxonMobil’s Say on Pay resolution.

This is well below average levels of support for Say on Pay, even among other oil companies some of whom actually paid their CEOs more than ExxonMobil despite being much smaller, and, as the company claims, much easier to run companies.

Proxy advisory firm exhortations to vote against the same Say on Pay resolution at the 2012 annual meeting caused Exxon to issue not only a written special proxy, but even to run a special webcast to defend their compensation policies.

We are already on record – indeed we frequently use it as a shining example – as congratulating the company on the lengthy restriction and retention periods attached to its restricted stock grants. Restriction periods of five years, 10 years, or through retirement are far more draconian than are found almost anywhere else and the company is rightly proud of them.

So why are shareholders so miffed about executive compensation at Exxon?

Could it be the $55 million in pensions amassed by CEO Rex Tillerson? Could it be the $122 million in unvested restricted stock?

Or could it be that they would like the restricted stock tied, and I mean really tied, to performance?

This is what the company said in the webcast:

The Compensation Committee has carefully considered this result as well as shareholder feedback on executive compensation through a wide-ranging dialogue between management and numerous shareholders, including the Company’s largest shareholders.

There was no consensus recommendation for any specific change to the design of our compensation program.

Dialogue included discussion on whether the Company should consider the use of formula-based pay tied to shorter-term metrics, such as 1- and 3-year TSR.

We believe that applying a short-term, formula-based approach to ExxonMobil’s compensation program would undermine the uniquely long-term requirements of our proven business strategy, which are characterized by investment lead times that can span decades.

Well, they were asking the wrong people.

No shareholder in their right mind would be interested in replacing five and 10-year restricted stock with performance shares based on three-year TSR. That’s ridiculous. Let me say here and now that most of this problem would go away if the company retained the restriction periods and applied performance conditions to them. Yesterday, speaking to a reporter, I suggested a 5-10 year return on capital employed (ROCE) metric against the company’s closest industry peers, and low and behold, on the webcast the company indicated that this was its favorite metric.

Who said anything about lack of consensus?

I’d encourage them to give me a call, except, of course, GMI Ratings doesn’t do consulting for corporations.

GMI Ratings gives ExxonMobil an ESG rating of D, largely driven by poor compensation and environmental scores, though its AGR is average.

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Many corporations conduct their meeting so as to create the impression that the suggestions of shareholders are welcome and contribute to a better company. Exxon does not bother with this show – and whether it is brutal honesty or they just do not care, I don’t know; and so I will not attend the meeting.

The reality – the unmistakable conclusion that ExxonMobil is not effectively accountable to anyone – raises critical questions.  Is authoritarian power in management essential for the competitive functioning of a major enterprise? Or, is there an even more important issue raised: “power tends to corrupt, absolute power corrupts absolutely.”

Exxon has tremendous power in our world and they have used this power in several helpful ways during the past year.  It is genuinely exciting that one of the great creative minds of our time – Craig Venter – has received substantial financial backing from Exxon for biofuels research and the development of algae as a fuel source. And it makes one proud to be a shareholder to see the extent to which a culture of safety is built into Exxon’s compensation system and into its operating culture. Also, it is good that Exxon speaks bluntly about the deficiencies in BP’s management of the Macondo well and oil spill. All too often, industry insiders will “cover up” competitors’ public flaws, preferring to deal with them privately. In this case, Exxon may well have been motivated by a desire to head off the prospect of federal regulations affecting not only BP but the entire industry. Beyond this, Chairman and CEO Rex Tillerson has introduced a fine public relations program which has had the effect of lifting public esteem for the company.

It is, indeed, too bad that a company with such virtues would find it so difficult to behave civilly respecting matters where disagreement exists – several of which are resolutions to be voted on at this Annual Meeting.

And there are bigger issues at stake. Exxon is a global enterprise with massive operations on six continents. Its scope is manifestly larger than that of any single country in which it operates, including the United States, the country in which it is legally domiciled. There is a serious and largely unexamined asymmetry of power between the company and any single country. There are neither transnational laws nor enforceable regulations affecting companies of the scale of Exxon. The temptations and tendencies towards regulatory arbitrage are manifest and productive. This is the principal reason why the niceties of accountability to ownership are so important; only the shareholders – not regulators, not legislators, not tax authority – have the capacity clearly to guide and direct management because ownership, too, transcends global and political boundaries.

With the 2010 Citizens United case it has become vastly more important for owners to participate, because this case has been interpreted as permitting corporations’ unlimited financial involvement in electoral politics and lobbying. Elsewhere, I have written: “I have long pondered the unresolved conundrum of the lack of value of cash in the largest companies. Focusing on the importance of the P/E (price-earnings ratio), what does $1 billion less mean to Exxon’s market value?”[1]

Managements literally have control over “free money” in the sense that they can spend it without adverse effect on market value. Is there something perverse in the way Exxon management has used its “free money?” How many years does full public settlement of the Valdez oil spill have to wait?  Even though the amounts are trivial to Exxon, why does the management hire expensive law firms year after year to frustrate shareholder resolutions under Section 14a-8? This imposes a tax on shareholders in the exercise of their rights to ask questions of management. Exxon has funded “think tanks” who have obligingly introduced doubt in the public dialogue about the responsibility of carbon spewing companies for global warming. But, most importantly, in the post-Citizens United world, the huge corporation can overwhelm all other participants in the political process. I have read all of the references in the ExxonMobil proxy statement setting forth where they account for their political expenditures, but – for example – I was not successful in finding how much money, if any, they give to the U.S. Chamber of Commerce and how that money is to be used.

It is essential to the integrity of democracy in America for the public to be informed on the source of financing of political dialogue. And, if I as an involved and interested “owner” cannot hold Exxon accountable for how company funds are spent on politics, who can?

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