The activist investor who just scored a major victory at ExxonMobil this week says he learned a key lesson he brought to the boardroom battle from a failed coal mine he tried to launch in the mid-2000s.
Chris James said in an interview Thursday that his experience sowed the seeds of what eventually became Engine No. 1, the newly formed investment firm that won at least two seats on the board of ExxonMobil on Wednesday. The firm may take a third seat when the final votes are tallied, the company has conceded.
The original idea for the coal mine had been to create jobs and help the community near his hometown of Harrisburg, Illinois, he said. But he failed to realise at the time how rapidly technological innovation and natural gas prices were causing demand for coal to fall.
“Technological innovation is not linear,” he said. “That was a real eye-opening exercise.”
The pace at which the coal market deteriorated highlights the risk companies like Exxon now face as the global economy shifts away from carbon-based energy, he said. The existential threats energy transition and technological advancements pose to companies like Exxon factored prominently in Engine No. 1’s proxy fight at the oil and gas giant. As such, it not only focused on how Exxon was falling behind its peers from a financial perspective but in its energy transition plans well.
“It was a campaign that was built on logic and economics,” James said.
A failed coal mine does not define James. He made his name (and a substantial amount of money) as a technology investor. James spent much of his career as stock picker and co-founded one of the largest tech hedge funds, Andor Capital Management, before leaving in 2004 to start another fund, Partners Fund Management. At Partners Fund, he managed north of $5 billion in total assets at its peak.
His new firm, which only has about $250 million in assets under management, largely from James’ personal wealth, launched in December. It includes six other executives with experience in private equity, activism, environmentalism and technology. The fight at Exxon has been a vindication for James’ fledgling fund. It also validated its so-called impact investment strategy that focuses on both social and financial rewards.
In addition to activism, Engine No. 1 has said it plans to invest in both public and private companies. The firm currently is operating on internal capital but intends to raise funds from institutional and retail investors this year, a person familiar with the matter said. (James declined to comment on the firm’s assets under management and its fundraising ambitions.)
The Exxon fight is the most high-profile proof to date that environmental and social issues are now fully at the forefront. Engine No. 1’ message clearly resonated with other investors, including pension funds, the Church of England, and even large asset managers, like BlackRock Inc. This, despite the firm owning a roughly $54 million stake in the $250 billion oil and gas giant, or about 0.02%.
The campaign was led by Charlie Penner, a former partner at the New York activist firm Jana Partners. Penner is in charge of Engine No. 1’s active engagement practice, and says the firm’s activism will be a little different than other funds, which aim to help companies that have already begun a transition.
“We’re trying to find companies that aren’t doing the right thing and try to get them to do it,” Penner said in an interview.
The blueprint for the Exxon fight — making a name for yourself by punching the biggest bully in the yard in the nose — is not a new one for Penner, and is similar to another campaign he oversaw at Jana before he left in 2020.
In 2018, his former firm teamed up with the California State Teachers’ Retirement System to push Apple Inc. to do more to protect children using its phones. That campaign garnered a lot of headlines, and a response from Apple. Apple also eventually released improved parental controls.
While it wasn’t the sort of bombastic battle Engine No. 1 just had at Exxon, it prompted James to reach out to Penner to see if he would be interested in joining forces. The two ultimately did after Penner left Jana last year.
Picking big companies like Apple and Exxon is a strategy that will likely be repeated, Penner said. “The Apple campaign inspired Google to make changes. Even Facebook started talking about user wellbeing. If you can get Exxon to change, everybody else in the industry has to listen,” Penner said. “There probably could have been easier targets in both cases. But it’s about getting the most impact in both cases.”