Exxon had a very rough year in 2020. Revenues sank by some $83 billion versus a year ago and the energy titan tumbled from No. 3 on the Fortune 500 list to No. 10. After two decades without even a negative quarter, it lost $22.4 billion in 2020. Exxon was removed from the 30 company Dow Jones Industrial Average (DJIA) after 92 consecutive years as a member, replaced by software giant Salesforce. Even more frustrating, Chevron, its longtime rival, kept it place on the DJIA. Over the past 5 years, Exxon’s stock price has fallen -32% while Chevron’s rose +6% and the S&P 500 was up 102%.
There are three core problems that seem to be the major sources of all this negative news:
- • Ignoring the Even the Possibility of Other Energy Sources Becoming Significant – Exxon religiously clings to its long-established world view of oil and gas being at the center of economic growth for decades to come. In the current age of an energy transition away from fossil fuels and toward more sustainable sources, you would think the sensible thing to do is the keep your oil and gas business as healthy as possible, while working hard to see how you could get yourself into a position to lead the industry in investigating and developing sustainable products and services to whatever extent possible, While peers like BP, Shell, and France’s Total are accelerating investments in clean energy alternatives, Exxon has dragged its feet on investing significantly in anything outside of its core oil and gas business.
- • Ignoring Employee Morale Problems – Based on interviews with current and former Exxon employees from all levels and departments, Fortune Magazine reports the current CEO, who has been in the job for four years, and has become a divisive figure for many at the company. He is criticized by some as lacking the aggressiveness and stature of his predecessors and by other as not being a visionary change agent. Also, the CEO has consistently defended the deeply unpopular employee ranking system, which most companies have abandoned a decade ago, causing him to be viewed as tone deaf and arrogant by employees.
- • Ignoring Wall Street – When Wall Street presses the company as to what, exactly, the oil and gas giant plans to do in aggressively investigating opportunities in alternate sources of energy, its latest response is to explain its recent launch into better carbon capture and storage; CCS in Exxon jargon. CCS is a process in which carbon dioxide from the current processes of generating fossil fuels is captured and prevented from reaching the atmosphere. The following quote from one analyst summarizes Wall Street’s reaction: “The Exxon attitude is we don’t dress up our pig at all. We don’t even put lipstick on the pig. We just say ‘Everyone likes bacon, so shut up.’”
Due to these factors, it is not surprising that, sensing weakness, activist investors are on the attack – led by a newly created investment firm called Engine No. 1. It recently launched a proxy battle challenging Exxon over its lack of action in investigating alternate energy strategies. It was successful and landed 3 directors on the board. At last, maybe we will see a serious challenge to the stubborn, entrenched Exxon management.