NEW YORK -- In an effort to address shareholder concerns during a bitter fight with major investors over the management and strategic direction of the company, Hess Corp. said that it will separate the role of chairman and chief executive officer immediately following its annual meeting on May 16 in Houston.
As reported in a Raymond James/CSP Daily News Flash on Friday, John Krenicki, former vice chairman of GE, has agreed to serve as nonexecutive chairman if he is elected with the other Hess nominees.
John B. Hess, the company's chairman and CEO, has stated his full support for the decision.
And John Mullin, lead director for Hess, said, "As we continue our transformation to a pure-play E&P company, we have heard from shareholders who approve of our strategy while also expressing a desire for better accountability, increased board oversight and the adoption of best-in-class corporate governance practices. We understand our shareholders' views, and recognize that our corporate governance structure should have been improved sooner. Separating the roles of chairman and CEO and declassifying our board reflects our commitment to shareholders."
He said, "John Krenicki has had a distinguished career as one of the top executives at GE where he ran GE Energy while overseeing GE's Oil & Gas, Power & Water and Energy management businesses. Based on strong leadership qualities and unimpeachable independence, the board believes that he--along with Hess' other director nominees--has the right blend of experience and sound judgment to provide accountability, while guiding Hess' transformation to a pure-play E&P company for the benefit of all shareholders."
Krenicki said, "There is tremendous value in Hess, and management is executing on a clear and measurable plan that is already unlocking that value. Many shareholders with whom my fellow nominees and I have met over the past few months confirm and support this view. I speak for all of Hess' nominees in stating unequivocally our commitment to vigorously oversee the execution of the Hess plan on behalf of all shareholders, as well as the careful consideration, study and pursuit of all strategies to ensure continued value creation at Hess."
He added, "My fellow nominees have served as directors and as senior managers of leading global businesses. We strongly believe a board that is structurally divided by misaligned incentives such as Elliott's compensation scheme creates substantial risk. In an industry like oil and gas, where most successful projects produce returns over a longer time horizon, a subset of directors specifically incentivized to pursue short-term gains would introduce a troubling level of boardroom dysfunction. Rather than provide effective oversight, this structure could impede value creation by undermining a company's ability to attract and retain top talent as well as the confidence of current and potential partners who rely on a reliable and stable counterparty over the life of a project."
Following the annual meeting, the newly constituted Corporate Governance & Nominating Committee will outline responsibilities for the nonexecutive chairman that are consistent with corporate governance best practices, the company said.
It said that Krenicki and the board's new and continuing directors that it is recommending are committed to providing independent oversight and holding management accountable for the successful execution of Hess' strategy; directing capital allocation decisions to strike the appropriate balance between funding growth and increasing shareholder returns; when necessary, making changes to Hess' strategy to ensure the company is driving shareholder value; and a board renewal process under which the majority of the board will be comprised of new directors by the end of 2013, in addition to the six new directors who will sit on the Hess board following this election.
Elliott Management Corp., one of the largest shareholders of Hess Corp., and a critic of current Hess management, said, "A resolution to split the chairman and CEO roles at Hess ... is not a concession or step on the part of the company; rather, it is a reaction to the shareholder vote currently underway. It is significant to note that Hess's board recommended against this split only a few weeks ago."
It added, "We are excited about the tremendous and continuing support [our] shareholder nominees are receiving. They will be a great benefit to the Hess board. We look forward to a new era of accountability at Hess."
Proxy War
Meanwhile, a proxy advisory war has broken out. Earlier this month, Elliott Management said that independent proxy voting advisory firm Glass Lewis & Co. has recommended that Hess shareholders vote to support all of Elliott's independent nominees. It also said that Institutional Shareholder Services (ISS), another leading independent proxy voting advisory firm, has recommended that Hess shareholders vote to support all of Elliott's independent nominees.
ISS said, "The dissidents have made a compelling case that a change in the composition of the board is necessary and have proposed a slate of nominees that are well positioned to effect this change. ... the question is never whether an incumbent board, having presided over a long destruction of value, has suddenly awakened to the need for change: it is whether, when the heightened scrutiny of the proxy contest ends, the same board is likely to remain as reinvigorated as it now professes to be."
Hess responded, "We have exceeded ISS's burden of proof on all counts--the economic superiority of our transformation plan and the suitability of a world-class slate of new, independent nominees to oversee the execution of that plan. It is troubling that ISS would suggest that shareholders support dissident candidates who are beholden to a new, 4% shareholder that has offered no constructive ideas for change at Hess. We are executing well against our multiyear transformation to a pure play E&P company, a plan that has received overwhelming support from our shareholders and independent Wall Street analysts."
It continued, "The ISS report is in keeping with an institutional bias toward dissident slates, recommending for the dissident on approximately 75% of proxy contests. ... Electing Elliott's nominees would jeopardize the ongoing success of our transformation plan by creating a strategically misaligned board which includes dissident nominees who are directly compensated to pursue Elliott's short-term agenda."
It said that ISS's recommendation "lacks any critical analysis of the dissident nominees [and] disregards easily verifiable facts that would refute their analysis."
Hess said that Egan Jones, a competing proxy advisory firm, issued a report in support of all of Hess's nominees. It said it considered the following:
1. The belief that the dissidents have not offered a persuasive, comprehensive, strategic plan compared what the company is executing that will maximize shareholder value. We strongly believe that the management and the board has clearly demonstrated and executed its plans of transformation for the company. As stated in the company's public disclosure, Hess continues to significantly cut capital expenditures and exploration spending, while driving production growth and maintaining a focused exploration program. Moreover, Hess has been implementing a successful asset divestiture program that has enabled it to deliver higher growth, lower risk E&P assets.
2. We are not convinced that the dissidents' nominees would work to the benefit of the shareholders, given their level of industry expertise and public company experience, and particularly if receiving compensation from Elliott if elected. The latter would clearly demonstrate a potential conflict of interest, affecting their independence and judgment, in our view.
3. The fact that the solicitation being made by the dissidents could disrupt the ongoing efforts of the management toward the implementation of the strategic plan.
Egan Jones said, "Hess has nominated a slate of all new, independent director nominees. These directors would be assets to any boardroom across corporate America and are ideally suited to be directors at Hess. They have impeccable credentials, are the right team to objectively oversee the execution of Hess' market-endorsed transformation plan, and are not beholden to a single shareholder. We urge Hess shareholders to vote for all of our new, independent, highly qualified director nominees who will continue our transformation into a pure play E&P company that will drive increased returns for all Hess shareholders."
Hess, with headquarters in New York, is a global integrated energy company engaged in the exploration, production, purchase, transportation and sale of crude oil and natural gas, as well as the production and sale of refined petroleum, natural gas and electricity products.
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