When Exxon Mobil Corp.'s shareholder day gets underway May 29, eyes from across the globe will be watching as a relatively small but vocal contingency of investors is determined to vote against two or more of the oil company's directors, including Exxon CEO Darren Woods.

The uprising comes in response to Exxon's continued litigation against activist shareholders who filed a resolution asking the company to speed up its greenhouse gas reductions. A federal judge on May 22 dismissed the case against one of the groups, Follow This, while letting the Exxon lawsuit against sustainability investment firm Arjuna Capital LLC proceed.

The oil company's decision to sue its own shareholders has alarmed some pension funds, state treasurers, proxy advisory firms and investor advocacy groups who say the litigation will have a chilling effect on shareholder engagement.

Arjuna Capital on May 27 sent a letter to Exxon saying it "cannot alone bear the brunt of Exxon's war on shareholder rights." It pledged to refrain from any Exxon shareholder proposal going forward related to greenhouse gases or climate change in return for the oil company withdrawing the lawsuit.

Two large business groups, Business Roundtable and the US Chamber of Commerce, are supporting Exxon in the lawsuit as so-called friends of the court.

Large investors voice concern

On May 24, Norges Bank Investment Management — Exxon's seventh-largest investor — announced it would vote against Joseph Hooley, the company's lead independent director and chair of its governance committee.

"Norges Bank Investment Management continues to place utmost importance on the protection of shareholder rights and raises concern around the potential impacts of litigation against shareholders stemming from the submission of a shareholder proposal," the fund said in a statement. "We will continue to seek constructive dialog with Exxon Mobil on this and other topics."

Exxon responded with a statement suggesting the move by the Norwegian sovereign wealth fund was misdirected.

"We're disappointed with Norges' decision," the company wrote in an email. Norges Bank "and other investors have clearly benefited from Mr. Hooley's leadership, which has helped drive more than more than $90 billion of earnings, $60 billion of shareholder distributions, and a nearly 23% total shareholder return over the past two years."

Four days earlier, the largest US pension fund, the California Public Employees' Retirement System (CalPERS), said it would vote against all 13 of Exxon's directors because the repercussions of the company's shareholder lawsuit "could be devastating." With just 0.21% of Exxon ownership, the pension is a relatively small yet high-profile investor.

"The company's decision to seek new, broad corporate power puts every issue on the table," Marcie Frost, CalPERS' CEO, and Theresa Taylor, president of the pension's board, wrote in their statement. "If ExxonMobil succeeds in silencing voices and upending the rules of shareholder democracy, what other subjects will the leaders of any company make off limits? Worker safety? Excessive executive compensation?"

Exxon board upheaval unlikely

The effort to oust Exxon directors faces long odds without the support of large US asset managers that own nearly 25% of the company and can easily control the outcome of a shareholder vote.

The chance of an Exxon director not getting reelected on May 29 is "very low," said Larry Cunningham, a George Washington University professor and special counsel for Mayer Brown who focuses on corporate culture, law and governance.

"Most shareholders are interested in economic prosperity, possibly along with other goals; these activists are focused on driving ExxonMobil out of business," Cunningham wrote in an email. "Expect no quality shareholders to vote with the activists. This campaign is clearly solely for climate, without any concern for the economics of Exxon or its shareholders."

Even if the shareholder action is unlikely to change the makeup of the company's board, a vote of just 5% or 10% can have an impact, said Dorothy Lund, a Columbia University corporate law professor.

"As a director, you want to make sure your shareholders are happy with what you're doing," Lund said in an interview. "If you have large and influential shareholders saying we're so unhappy with the decisions you've made that we're going to vote against you, then that can send a message."

Spokespeople for Vanguard Group Inc. and BlackRock Inc., Exxon's two largest investors, said they do not preview voting decisions before shareholder meetings. State Street Corp., the company's third-largest investor, did not return a request for comment.

State treasurers weigh in

Some investors are appealing directly to the asset managers to join their cause against the directors.

Six state treasurers, the comptrollers of New York and Maryland, and two trade unions joined CalPERS in filing an exempt solicitation with the SEC "calling on the world's largest asset managers to hold ExxonMobil's board of directors accountable."

Such a notice can be used by investors seeking support from just a handful of shareholders, in this case several asset managers.

"We really don't intend to unseat the directors," Maryland Comptroller Brooke Lierman said during a recent webinar to discuss the campaign. "This is not a proxy battle. What we're trying to do is to get the board's attention for a set of governance issues that they really need to address. This is costing the company a lot of money and it's not doing their reputation any good."