Calstrs’s Crucial Phone Call Eased Path for Activist’s Exxon Win

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(Bloomberg) — On the top of the proxy battle led by funding fund Engine No. 1 to call a slate of dissident administrators with environmental and power expertise to the board of Exxon Mobil Corp., in March, the oil big abruptly added two extra climate-aware members to its board .

It was the type of half-measure which may have buried the long-shot marketing campaign led by Engine No. 1, an underdog activist fund, if sufficient buyers had been satisfied that Exxon was honest, recollects Kirsten Snow Spalding, senior program director of the Investor Community at Ceres, a sustainability nonprofit .

So it was to Spalding’s nice aid when Aeisha Mastagni, a portfolio supervisor from the California Lecturers Retirement System, instructed her and others on a telephone name quickly after that she continued to assist Engine No. 1’s plan. “Exxon hasn’t earned the precise to nominate their very own administrators,’” Spalding recalled her saying.

Mastagni would be the least-known participant within the David and Goliath saga of Engine No. 1 vs. Exxon, however many suppose the 45-year-old, who leads company engagement at Calstrs’s sustainable funding and stewardship methods unit, additionally was the make-or-break issue.

At Mastagni’s urging, Calstrs, the U.S.’s second largest public pension fund, got here out in assist of Engine No. 1’s different slate the day it was introduced final December, giving the startup instantaneous credibility it would in any other case have lacked. After that, Mastagni led a gentle push to teach different Exxon shareholders.

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Charlie Penner, who ran the marketing campaign for Engine No. 1, mentioned plainly, “I don’t suppose it could have occurred with out her. She was extremely forceful in her advocacy for why clients ought to do that.”

Mastagni began her profession proper out of school working within the company engagement division on the California Public Worker Retirement System, the nation’s largest public pension fund. Over the subsequent a number of years, she discovered to learn a proxy assertion and commenced to develop relationships with activist fund managers. In 2009, she took these expertise to Calstrs, the place she stood out for her dedication to shareholder activism on the typically cautious pension fund.

She and Penner met and bonded in 2011 once they had been each a part of a gaggle preventing the U.S. Securities and Trade Fee’s efforts to shorten the period of time buyers needed to give discover to an organization as soon as they’d amassed a sure proportion of shares. Each believed it could undercut the power of activist buyers to construct up the monetary leverage they wanted. The SEC finally dropped the difficulty.

“Lengthy earlier than it was modern, she was actually the largest advocate for the concept that establishments like Calstrs must be utilizing their voice and their votes, to get firms to suppose extra long run,” Penner mentioned.

Previous to Exxon, Mastagni and Penner mentioned that they’d choreographed two earlier activist maneuvers–one in 2018, once they lobbied Apple Inc. for extra parental controls to devices to curb rising habit amongst youngsters, and one other sustainability-related measure final 12 months, which neither would talk about intimately. Each efforts had been profitable, Penner mentioned.

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When Penner approached her to see if Calstrs would assist Engine No. 1’s director candidates for Exxon in the summertime of 2020, Mastagni was prepared. She’d already been advocating inside Calstrs so as to add a stage of engagement that went past floating shareholder resolutions and holding calls with firm administration. She referred to as it “activist stewardship.”

“We see activist stewardship as focused and heightened engagement the place conventional engagement failed,” Mastagni mentioned throughout an interview in early June.

In an opinion piece she co-wrote for the Harvard Legislation College Discussion board on Company Governance in March, she elaborated additional. The article states that conventional engagement entails “personal constructive conversations,” whereas the brand new mannequin embraces “expertise and methods of the activist hedge funds” that embrace very public proxy campaigns and media bombardment.

“Calstrs has at all times been a progressive, forward-thinking asset proprietor,” she added within the interview. However in taking up Exxon, “we had been undoubtedly taking issues to a brand new stage.”

Exxon had been, in her phrases, “implacable” within the face of the extra conventional strategies of persuasion. For years, Calstrs, amongst different buyers, was pushing the oil big to arrange for the transition to a low-carbon financial system. Exxon, in response, ignored them. In Could 2020, out of frustration, Calstrs voted towards Exxon’s proposed slate of administrators. Throughout a name to clarify their vote, the corporate’s investor relations representatives really hung up the telephone, Chris Ailman, Calstrs’s chief funding officer, mentioned in a current interview.

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Casey Norton, an Exxon spokesman, mentioned it was “false” that the investor relations staff hung up the telephone. He additionally vigorously denied that Exxon had been unresponsive to buyers.  “Now we have dramatically elevated our engagement with shareholders over the past a number of years,” he mentioned. “We worth their suggestions, and it’s mirrored in our enterprise plans and the composition of the board.” Norton declined to remark particularly about Calstrs or Mastagni, and their function within the current proxy battle.

Nonetheless, it took some arm-twisting inside Calstrs to assist Engine No. 1. When Mastagni and her boss on the sustainability staff introduced the proxy battle thought to Ailman, he paused. He recalled pondering, “Holy bananas, can’t we begin with a smaller firm first?”

Mastagni centered on the monetary case for severe reform, together with the truth that Exxon’s capital expenditures had been in areas that will make them particularly troublesome to recoup. Ailman was satisfied, however nonetheless nervous. “Exxon is a behemoth and generally is a bully,” he mentioned.

Calstrs determined that it wouldn’t assist run the proxy battle straight as it could have value tens of thousands and thousands of {dollars} to arrange and risked alienating among the pension fund’s constituents. As a substitute, Calsters opted — after a radical assessment of the board candidates proposed by Engine No. 1 —  to go all in supporting the slate.

Ailman intentionally put Mastagni out entrance. “Now we have others who’re higher on local weather, however Aeisha actually leads on company engagement,” he mentioned. “I wished a veteran to steer the cost.”

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Mastagni didn’t disappoint. She organized a set of webinars with proxy advisory corporations. There additionally was one with the North American buyers from Local weather Motion 100+, a gaggle that’s placing stress on the world’s largest carbon producers to chop their emissions. She was notably forceful on the {qualifications} of Engine No. 1’s set of administrators, whom Exxon had been publicly disparaging.

A lot of her companions famous that Mastagni, who skilled as a dancer, manages to regulate a room regardless of her petite stature. “She’s not essentially the individual you suppose would stroll in and take over a room, however she does it by a type of pressure of competence and preparation,” Penner mentioned.

“Possibly it leads you to be underestimated by the likes of Exxon,” mentioned Andrew Logan, oil and fuel director for Ceres. “However the investor neighborhood knew what she may do.”

Engine No. 1’s profitable proxy marketing campaign has galvanized socially accountable buyers, who’ve historically pressed for change by talking with firm managers and submitting non-binding shareholder resolutions. Matt Patsky, who runs Trillium Asset Administration, one of many nation’s oldest corporations centered on environmental, social and governance points, mentioned he would take into account doing the sort of proxy activism with different massive buyers. “It’s a 3rd instrument,” he mentioned.

Mastagni is thrilled. “I prefer to suppose we had been very, very influential,” she mentioned. Among the many the opposite firms in Calstrs’s funding portfolio which have huge fossil-fuel publicity are Berkshire Hathaway Inc. and J.P. Morgan Chase & Co.

Whereas declining to single out her subsequent goal after Exxon, Mastagni mentioned she does have concepts within the works. “We hope with this victory, subsequent time it gained’t be fairly so contentious.”

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