Retail Shareholder Voting Automation: The New ExxonMobil Approach

Retail investors statistically do not vote at the same rate as other investors, particularly institutional investors. Under a new approach pioneered by ExxonMobil, public companies would offer retail investors the option to provide standing voting instructions to cast votes as recommended by the company's board of directors. This follows the SEC's recent no-action letter confirming they would not recommend enforcement under Exchange Act Rules 14a-4(d)(2) and (3) for ExxonMobil's voting program. The proposed voting program would allow participating retail shareholders the ability to opt in to standing voting instructions, but would keep shareholders informed about upcoming shareholder meetings and give them the ability to opt out and cancel the standing voting instructions.

ExxonMobil's voting program would allow retail (i.e., individual) investors that opt in to choose a standing voting instruction to cast votes as recommended by the company's board of directors for either (1) all matters or (2) all matters, except contested director elections or any acquisition, merger, or divestiture transaction that, under applicable law, requires shareholder approval.

The ExxonMobil voting program would also have the following attributes, which the SEC relied on for its no-action determination:

• the program would be available to all retail investors, including registered owners and beneficial owners (via their bank, broker or plan administrator) of ExxonMobil's shares at no cost, and each investor would be offered the same opportunity to enroll in the program;
• the program would not be available to investment advisers registered under the Investment Advisers Act of 1940 exercising voting authority with respect to client securities;
• retail shareholders that have opted in to the program would receive an annual reminder, during the time period when ExxonMobil is not soliciting votes for its annual shareholder meeting, of their opt-in status and selection, and would be reminded of their ability to opt out and cancel their standing voting instruction with respect to subsequent meetings;
• participating retail shareholders would have the ability and choice to opt out and cancel the standing voting instruction at no cost, as well as the ability to override the instruction with respect to any particular proposal or proposals at no cost;
• participating retail shareholders would continue to receive all proxy materials filed for upcoming shareholder meetings and the program would not limit or restrict shareholders from voting at any time using the proxy materials they received for each meeting; and
• ExxonMobil would make full disclosure on its website and in its proxy statements of the program.

As proposed, ExxonMobil's voting program arguably avoids the limitations of Exchange Act Rules 14a-4(d)(2) and (3), which prohibit proxies that confer voting authority for an "annual meeting other than the next annual meeting" and "with respect to more than one meeting." ExxonMobil successfully argued to the SEC that its program did not conflict with those rules "given the reminders and easy optout and override abilities built into the program and the choices made by shareholders."

While the SEC may have granted "no action" relief from its enforcement under federal securities laws, any company considering a similar voting program should confirm that a standing voting instruction or similar arrangement does not conflict with the laws of its state of incorporation. Although ExxonMobil is a New Jersey corporation, its SEC no-action request also addresses Delaware law, noting that each state permits giving a standing voting instruction that does not expire so long as the instruction provides for an extended duration. Texas law similarly allows for a voting instruction that does not expire if the instruction provides for an extended duration. While state and federal courts have yet to review the matter, certain activist shareholders have already sought the SEC to rescind their effective approval of the program.¹

Public reporting companies that have a significant amount of retail investors may want to consider adopting a retail voting program. For a variety of reasons, large portions of retail investors often do not attend meetings or exercise their voting rights, which can affect a company's ability to meet the applicable voting or quorum requirements to pass a proposal brought by management or shareholders. A retail investor program such as Exxon's may be effective to boost retail investor engagement, align retail votes with board recommendations, and streamline the proxy voting process—all while allowing each investor the flexibility to revoke or override their voting instructions when desired.

However, the costs and practical demands of implementing and maintaining a program like this—including disclosure preparation, monitoring, and management time—should be weighed carefully against potential benefits. Companies should assess their own circumstances, including their shareholder base and historical proposals and outcomes, before changing their proxy voting practices.

Footnote

1. Shareholders Ask SEC to Reconsider ExxonMobil Program Locking in Pro-Management Vote in Violation of SEC Rules — As You Sow

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