> Well! About a hundred of you emailed me to say that it’s obvious what’s in it for Engine No. 1: publicity. This is a hedge fund that launched six months ago; it runs a small fund and doesn’t have much of a track record. Now it is The Little Engine That Took Down Exxon. It has gone from nothing to being a daring successful activist, and an activist with a halo of environmental virtue. It can fundraise off of that forever, attract lots of money, collect lots of fees, etc. The $30 million of proxy expenses are an investment to make millions more in management fees.
> A related benefit is what any activist fund gets from a successful proxy fight: The next company they go after will be intimidated by their Exxon victory, and will try to settle by giving them board seats. You spend $30 million on one proxy fight so you don’t have to spend any money on five more. You show up at a meeting with the next company’s CEO, you put Exxon’s severed head on the table, you say “board seats, now,” and you get them without a fight.
> Fine! That’s all fair enough. One reader pointed out another, more technical but also quite important answer: It is customary for activist hedge funds that win their proxy fights to be reimbursed by the company.[1] So, because it won, Engine No. 1 probably spent $30 million of Exxon’s money on the proxy fight, not its own. That probably helps. It took a big risk here: If it had lost the proxy fight, it would be out $30 million and wouldn’t have all the fundraising benefit of having taken down Exxon. But because it won, the economics actually look pretty good.
> I think the basic reading here is that at a giant public company like Exxon, the managers and board of directors sort of assume that they get to decide who can be on the board, and that shareholders are not really supposed to interfere. Technically this assumption is wrong, and at Exxon last week it did not work out, but you can see why Exxon found it so surprising.
> Well! About a hundred of you emailed me to say that it’s obvious what’s in it for Engine No. 1: publicity. This is a hedge fund that launched six months ago; it runs a small fund and doesn’t have much of a track record. Now it is The Little Engine That Took Down Exxon. It has gone from nothing to being a daring successful activist, and an activist with a halo of environmental virtue. It can fundraise off of that forever, attract lots of money, collect lots of fees, etc. The $30 million of proxy expenses are an investment to make millions more in management fees.
> A related benefit is what any activist fund gets from a successful proxy fight: The next company they go after will be intimidated by their Exxon victory, and will try to settle by giving them board seats. You spend $30 million on one proxy fight so you don’t have to spend any money on five more. You show up at a meeting with the next company’s CEO, you put Exxon’s severed head on the table, you say “board seats, now,” and you get them without a fight.
> Fine! That’s all fair enough. One reader pointed out another, more technical but also quite important answer: It is customary for activist hedge funds that win their proxy fights to be reimbursed by the company.[1] So, because it won, Engine No. 1 probably spent $30 million of Exxon’s money on the proxy fight, not its own. That probably helps. It took a big risk here: If it had lost the proxy fight, it would be out $30 million and wouldn’t have all the fundraising benefit of having taken down Exxon. But because it won, the economics actually look pretty good.
> I think the basic reading here is that at a giant public company like Exxon, the managers and board of directors sort of assume that they get to decide who can be on the board, and that shareholders are not really supposed to interfere. Technically this assumption is wrong, and at Exxon last week it did not work out, but you can see why Exxon found it so surprising.