A FEW weeks ago, the corporate world was stunned when a small hedge fund called Engine No 1 created upheaval in the oil and gas industry by leading a proxy fight to oust some of ExxonMobil's directors over the latter's dismissive approach towards climate change. It came as no surprise that several key investors supported Engine No 1's call to revolt. ExxonMobil had already gone from being the largest company globally, as recently as 2013, to being demoted from the Dow Jones Industrial Average in 2020. It lost three of its board members after shareholders voted in favour of directors who have experience and track record in business transformation and value creation.

Across the Atlantic Ocean, a different story was unfolding. Total in France, one of the biggest publicly held oil and gas companies in the world, rebranded earlier this year as TotalEnergies. This is to signal its intent to pivot from being a predominant oil and gas giant to becoming a broad-based energy company and a leading player in energy transition.

The recent fortunes of these two companies have been stark. One suffered losses of US$22 billion in 2020. The other managed to beat estimates, outperform its peers and continue its steady transition towards cleaner energy during the same period. So what went wrong at ExxonMobil?

Implications of changing consumer behaviours

The ostensible reason that led to the shareholder rebellion at ExxonMobil would seem to be that investors are taking sustainability seriously and are demanding meaningful responses to environmental and governance issues in an underperforming industry.

However, a closer examination of the debacle suggests that the bigger problem lies in the rungs of its leadership. When ExxonMobil first acknowledged that climate change would have an impact on profitability during its disclosure to stockholders in 2007, its directors and executives did little to mitigate such risks. This was despite repeated calls to action from climate activists and concerned investors over the years. Meanwhile, consumer preferences were rapidly changing, fuelled by growing awareness about sustainability.

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In contrast, the TotalEnergies leadership team began a long-term plan to diversify away from fossil fuels as early as the turn of the century. Its CEO and board have been supportive of its transformation and have announced a series of plans during their 2021 annual shareholder meeting on realising its net-zero emissions target by 2050.

While ExxonMobil leaned towards shareholders' interest in its strategy, TotalEnergies took a more inclusive stewardship approach by balancing profit-making with the needs of stakeholders, the society and the environment.

Stewardship traditionally has meant responsibly managing what is entrusted in one's care. Given today's existential challenges like climate change, income inequality, and social unrest, at Stewardship Asia Centre, we define it as "the mindset and practice of creating long-term value by balancing the needs of all stakeholders, society, future generations, and the environment".

Business leaders, who accept the challenge of driving superior economic value by addressing the challenges humanity faces today, are steward leaders. They are motivated by a strong desire to create a collective better future for all stakeholders, not just the pursuit of shareholder returns.

In the case of ExxonMobil, failure to understand the changing priorities of its investors, allied with pressure from climate activists, placed management under pressure. Its leadership was hesitant to plan for a future that is less reliant on fossil fuels. This inertia towards energy transition became a barrier to get the know-how and organisational capabilities needed to operate as a broad-based company.

The absence of proactive, responsible, and empathetic stewardship led to a decline in investor confidence over the company's long-term growth prospects and ultimately to the now infamous coup.

While TotalEnergies had its share of difficulties, it did not receive such antagonistic behaviour from activists as the board and executives have been transparent in discussing its plans for tackling climate change and building clean energy capabilities both to the public and their shareholders.

Adopting an ownership mentality and taking a long-term view

The conventional narrative of the oil and gas industry hinges on its ability to provide stable financial returns, even in economic crises. This has led to some industry bosses believing that if they continue to rely on hydrocarbons, their business future would be secure. However, as many are now learning, no industry is immune and isolated from the effects of climate change and a changing, better-informed society that is demanding sustainable and inclusive growth.

In many ways, TotalEnergies was better prepared than ExxonMobil for this new green reality and embraced an ownership mindset that was essential in building trust between the company and its stakeholders. It exited the coal business, and identified renewables and low-carbon energy solutions as an area of competitive advantage in the energy sector. TotalEnergies aims to provide 100 gigawatts of renewable energies by 2030, more ambitious than its European rivals BP and Shell.

In essence, TotalEnergies is trying to future-proof its business. In the oil and gas context, this means building a portfolio that is resilient to volatile commodity prices and higher carbon charges while finding ways to diversify and decarbonise its business models. This transition is by no means an easy ride, and it will test the mettle of business leaders. The company only raked in US$148 million from its renewables out of US$7.3 billion company earnings in the first quarter of 2021.

However, TotalEnergies's CFO Jean-Pierre Sbraire stated that TotalEnergies remained committed to spend one quarter of its capital expenditures on renewables, attributed to its modest debt and fiscal stability. Its corporate strategy has begun to reap dividends as its peer-leading credit rating has improved, boosting its competitive advantage in the capital-intensive sector.

The foundation of enduring businesses: A steward leadership mindset

The debacle at ExxonMobil will not be the last if oil and gas company bosses do not embrace steward leadership and commit to developing cleaner energy. They risk facing greater discontent from climate activists and the community-at-large, which will affect their reputation and social licence to operate. Innovation breakthroughs in renewables or stricter climate regulations may also push the relative cost of oil production higher, which will result in the loss of total shareholder returns. The outcome will be a zero-sum game as the environment, society, and shareholders emerge as losers from the intransigence of business leaders who fail to adapt to changing times.

The same is true for other industries as well. Business leaders need to be more than just adept managers. They need to become responsible stewards by taking the responsibility to steer their companies in the right direction using the tools and influence that they have at their disposal. Gone are the days of maximising shareholder returns to the detriment of other stakeholders and the environment. There needs to be a genuine desire and persistence among business leaders to create a collective better future for all their stakeholders. The ExxonMobil boardroom drama of 2021 is an important reminder that times are changing, and will probably go down in corporate history as a wake-up call to the fact that in today's inter-connected world, no business can hope to succeed in isolation.

• The writer is a researcher at Stewardship Asia Centre and a member of the working group tasked with revising the Singapore Stewardship Principles (SSP) for Responsible Investors.