Director John S. Chalsty shares his perspectives on corporate governances at Oxy
How has Oxy’s approach to corporate governance evolved?
Oxy’s Corporate Governance, Nominating and Social Responsibility Committee (the “Governance Committee”) has actively followed governance issues for many years. As a result, Oxy has implemented many changes that now are considered hallmarks of responsible governance. For example, Oxy let its stockholder rights agreement (an anti-takeover device sometimes referred to as a “poison pill”) expire and adopted a policy against the adoption of similar anti-takeover devices without stockholder approval in 1996; published a set of corporate governance policies in 1997; and appointed a lead director from among its independent directors in 1999. Most recently, Oxy became one of the first Fortune 500 companies to agree to submit to stockholders an advisory vote on executive compensation, sometimes called “Say on Pay.” The first such advisory vote will be in 2010.
How does Oxy engage with its investors regarding corporate governance issues?
Engagement takes different forms. Sometimes it is as simple as responding to letters, and other times it involves face-to-face meetings. As Dr. Irani stated in connection with the announcement of the adoption of the advisory vote policy, “We welcome ongoing input from our stockholders. Oxy’s Board of Directors strives to maintain an ongoing, constructive dialogue with the goal of achieving continuous improvement in all aspects of our corporate governance, including executive compensation.”
For the past two years, Oxy has held meetings with groups of investors. The format has been casual, without formal presentations or a rigid agenda. Instead, the focus has been on listening to what investors have to say about Oxy and its corporate governance efforts. In the first year, among other things, Oxy learned that it was not effectively conveying the significant changes it had made in its compensation program, and that investors wanted to express their concerns directly to Board members. As a result, Oxy made changes to its disclosures and arranged to have the Chair of the Compensation Committee participate in meetings in the fall of 2008. Oxy plans to continue director participation in 2009.
Why did Oxy agree to an advisory vote on its executive compensation philosophy?
For the past two years, Oxy proactively has met with representatives of investors of all sizes and varying degrees of activism to discuss corporate governance issues. One of the issues that was a major part of the discussions was the advisory vote. Initially, the Board felt that a vote would not be informative and that more could be learned from investor meetings. However, through the discussion process, the Governance Committee and the Board recognized that an advisory vote would give all stockholders the opportunity to express an opinion on Oxy’s philosophy that the largest part of the compensation paid to senior management be at-risk and measured through performance objectives ascertainable from Oxy’s public financial information.
Has the focus of investor meetings been solely on executive compensation?
No, the discussions also included issues related to climate change, succession planning and other governance issues. Oxy’s Human Rights Policy was the product of meetings for over a year with representatives and members of the Interfaith Council on Corporate Responsibility (ICCR). Since the adoption of the policy, Oxy and ICCR have continued to meet to discuss Oxy’s progress in implementing the policy.
How have investors responded to the meetings?
The feedback we have received has been quite positive. One indication of success was the willingness of investors to participate for a second year and to engage in further discussions.
Donald Kirshbaum, the Investment Officer for Policy at the Connecticut State Treasurer’s Office, discussed his participation in the Oxy meetings with Stephen Deane of Governance Exchange in connection with RiskMetrics Group’s issue report, “Board-Shareholder Dialogue: Why They’re Talking.” Mr. Kirshbaum is quoted in the report as stating that “it was a good, productive, back-and-forth communication about an issue (‘Say on Pay’) that corporations in general are not moving on.” The article noted that Oxy had not yet acted on “Say on Pay” but that Mr. Kirshbaum said that was all right “because there is always the possibility that directors will make decisions in the future based on their unfiltered conversations with shareholders.” One month later, Oxy’s actions proved Mr. Kirshbaum right.