A noteworthy milestone in U.S. corporate history happened on Aug. 31: ExxonMobil Corp. was dropped from the Dow Jones Industrial Average (“the Dow”), comprising 30 of the largest, most economically important American corporations.
Based on market capitalization, Exxon was one of the 10 most valuable corporations in the country for at least the 62 years spanning 1957 to 2019 (the lifespan of the Standard & Poor’s 500 Index) and possibly for several decades before that. As recently as 2013, it was the most valuable corporation in the country. Today, it has fallen far and hard.
Five LessonsExxon’s history provides several lessons for us.
First, the fall of Exxon disposes of the silly, economically ignorant fantasy that gigantic corporations run the country. Corporations may be predominant for a while, but sooner or later, the merciless rigors of market competition bring even the highest high-flyers back to earth.
If we look back at the corporate stocks that composed the Dow index decades ago, we see that the turnover has been total. Exxon had been the senior member of the Dow (an amazing stretch of 92 years) but now the senior member is Procter & Gamble (88 years) followed by 3M, added only 44 years ago. There's no permanent corporate aristocracy in America. Most of the corporate titans of yesteryear are either defunct or mere shadows of what they once were. Sic transit gloria mundi.
Second, the changing makeup of the Dow illustrates the evolving nature of the U.S. economy. Just as labor has become more “mentalized” and less physical over recent decades, so the economy has morphed from heavy industry to high-tech, digital enterprises. Exxon’s place in the Dow, for example, is now occupied by Salesforce, a cloud-based software company.
Third, Exxon’s history vividly demonstrates the conceptual confusion of American antitrust law. A Supreme Court decision in 1911 mandated the breakup of Exxon’s predecessor, Standard Oil, under anti-monopoly laws, even though Standard not only wasn't a monopoly, but was also at that time losing market share to competitors. (One datum: Standard Oil’s share of domestic oil production was—brace yourself—11 percent and falling at the time of the court-ordered breakup.)
Apparently, the great sin of Standard Oil was to gain a larger market share than its competition by the not-so-dastardly practice of charging consumers ever-lower prices. Antitrust law had been intended to promote competition, but ended up penalizing winners of competition. Go figure.
Fourth, for decades Exxon was a lightning rod for anti-corporate demagoguery. Politicians and nonprofit organizations denounced Exxon for making too much money. Yes, Exxon did make a ton of money, but they accomplished this with massive volume, not with high profit margins. Industries as varied as pharmaceuticals, beverages, software, and many others have had perennially higher profit margins.
All the greens could do was harp on the occasional accident while completely ignoring that Exxon brought hundreds of billions of barrels of oil to market year after year, and almost always without harm or incident.
Time to Write Off Exxon?So, Exxon has been dropped from the Dow and is taking a financial beating. Is it time to write Exxon’s epitaph and consign it to the graveyard of fallen corporate giants? With my economist’s crystal ball, let me give you my prediction: Maybe.
Actually, I wouldn’t be too hasty to write off Exxon. Various pundits have chided Exxon for not having shifted production to renewables like some other oil-producing companies have. But, what if Californians and other Americans eventually grow tired of the developing-world-type brownouts and blackouts that have become more frequent with their increasing reliance on renewable energy? If the pendulum swings back and people come to their senses and realize the advantages of petroleum, Exxon could stage a comeback.
Exxon may someday be regarded as heroic for its stubborn insistence on refusing to accept taxpayer handouts to produce wind and solar energy while continuing to produce oil. Exxon’s glory days may not be over yet. The jury is still out.