By Deal Journal
Fed up with high CEO pay and the lack of a succession plan, Calsters
and Relational Investors LLC are pushing for seats on the Occidental
Petroleum board. Here’s the letter the two funds sent to the Los Angeles
energy company on July 30.
Dear Members ofthe Board:
As you know we have been engaged in a dialogue with various company
officials for over a year to discuss our concerns about the board’s
performance. In the most recent meeting our plan to nominate at least four
new directors to replace members of the current board at the next annual
meeting of shareholders was discussed with Aziz Syriani and Spencer
Abraham. We are writing to ensure that each board member has the
opportunity to directly hear from us our reasons for undertaking this
While we are, of course, extremely disappointed that this step is
necessary, after a year of interaction with the company without a
meaningful response, we are convinced that a major change in the company’s
board composition is required to ensure proper stewardship and
representation of shareholders’ interests.
The only explanation we can envision for the continued major governance
failings that have characterized the board’s stewardship is that the
board, as currently composed, suffers from entrenchment and ossification,
which renders each of its members incapable of functioning as vigorous and
independent shareholder representatives.
As a reminder, we particularly object to:
1) The board’s failure to properly oversee CEO compensation. As we said
in our last letter, CEO pay at Occidental functions essentially as a
corporate giveaway program. Throughout Dr. Ray Irani’s tenure as CEO his
pay has vastly exceeded CEO pay at even the largest companies in the oil &
gas industry. This trend has accelerated over the last several years. His
target awards are now nearly twice those ofthe CEO at Exxon Mobil, the
largest company in the world, and over three times that of Occidental’s
peer group average. Worse yet, actual payouts have materially exceeded
targeted amounts and this pattern is expected to continue in 2010. This
lavish payout is sure to again cast the board and the company in an
unfavorable light, just at a time when such abuses strike at the rawest
societal and investor nerves.
2) The board’s failure to enforce its own retirement age. After several
instances ofmaking special exceptions or extending the mandatory
retirement age, the board now simply ignores the policy.
In each of the last five years the board has granted retirement age
waivers, including waivers for the board’s chairman and two other current
directors at the 2010 Annual Meeting.
3) The board’s failure to announce and implement a Chairman/CEO
succession plan despite the fact that he has already exceeded the
company’s director retirement age. It is well known that Occidental’s
entrenched management structure has severely damaged the company’s
reputation Board of Directors Page 2 July 30, 2010 among investors. These
practices also insidiously impact company morale and professional
development throughout senior management ranks. A company of Occidental’s
maturity and stature cannot rest its future value on a single personality
or set of fleeting professional connections. To contribute to long-term
value, business relationships must be institutional, ongoing, and
projected far into the future.
These ongoing failings are patently inexcusable because each of them is
readily within the board’s control and central to the board’s most
Our work with the company has further convinced us that corrective
steps to address these issues, while urgently needed and long overdue,
will not cure the fundamental weakness in board dynamics that allowed
these failings to persist over many years. We believe this sentiment is
widely shared among the company’s shareholders as most recently evidenced
by their rejection ofthe company’s executive compensation plan and the
fact that, without any organized solicitation effort, the Executive
Compensation and Human Resources Committee members suffered an astounding
36% withhold vote (39% after accounting for abstentions and broker non
votes). Therefore, we are convinced that shareholders would overwhelmingly
support our candidates to replace members of the current board, including
its chairman and lead director.
Again, it is unfortunate that this process has led to this point, but
we hope you understand and respect our position.
Anne E. Sheehan
Director of Corporate Governance
California State Teachers’ Retirement System
cc: Mr. Donald P. de Brier, Executive Vice President, General Counsel and