Activist investors push objectives at ConocoPhillips meeting

May 14th 2014

HOUSTON – Surrounded by well-heeled investors in a packed Omni Hotel conference room on Tuesday, Jimmy Dunne took his turn at the microphone and held up a folded newspaper article from The New York Times.

He said it was about how shareholders get one chance every year to tell off their chief executives. At the annual shareholder meeting of the world’s largest independent oil producer, Dunne — who introduced himself as a happy stockholder from Houston — did just that.

“Income inequality is another big issue in the country right now,” Dunne told ConocoPhillips CEO Ryan Lance, who stood on a podium at the opposite end of the conference room. “We have a lot of people at the top making millions of dollars. We have a lot of people at the bottom making the minimum wage. Your salary is probably 1,000 times what the lowest employee of ConocoPhillips makes, so that’s huge inequality.”

But “the most shocking thing about this company,” Dunne boomed, was not Lance’s $23.4 million total compensation in 2013. It was former ConocoPhillips Chairman and CEO James Mulva’s massive payout when he retired in June 2012, Dunne said.

Mulva collected $140.9 million in vested stock options in 2011, in addition to his multimillion-dollar pay. The next year, the former chief executive, who set the stage for Phillips 66 to spin off from ConocoPhillips into the largest U.S. refiner by revenue, took home $68.3 million in a retirement plan and $52.1 million in deferred compensation, according to the company’s regulatory filings.

Lance explained that Mulva’s payout came after a four-decade career that led the company to “tremendous” growth, which greatly benefited shareholders. Much of Mulva’s compensation through several years was deferred through shares that became available at his retirement, and overall, reflected the company’s performance, Lance said.

But Dunne was not impressed.

“Well, that’s an obscene amount of money for anyone and I hope it doesn’t happen again,” he said.

Dunne and other shareholder activists are claiming their own “era,” the post-financial crisis time when relatively young federal regulations, including a rule allowing shareholders to cast non-binding votes on executive compensation, have proven effective tools for investors to influence company decision-making.

Many of the largest U.S. energy companies, including Chevron, Apache and Occidental Petroleum, rolled back top-shelf pay last year as they faced greater shareholder pressure. And, in the face of falling returns over the past four years, many more upstream energy firms have promised to divert cash from expensive projects to shareholders’ wallets. Several energy firms are selling off billions of dollars in assets to send money back to their investors.

Despite Dunne and other activists’ visible presence at ConocoPhillips’ annual meeting,  shareholders voted down two proposals — one for the company to report  its lobbying expenditures in greater detail, another for it to set greenhouse gas reduction targets. Each garnered about 15 percent of the vote, according to regulatory filings.

Still, some activists say more shareholders are supporting initiatives on hydraulic fracturing and environmental issues. Proposals for greater transparency about the technology and financial implications of hydraulic fracturing won about 30 percent support at Exxon Mobil and Chevron Corp. shareholder meetings last year, an increase over previous years.

At the ConocoPhillip meeting, one shareholder representative commended the company on  progress it has made in informing investors about its dealings with indigenous communities in foreign countries. Steven Heim, managing director for Boston Common Asset Management, said in 2009 the company began reporting in detail on its relations with indigenous people and meets regularly with concerned shareholders, eliminating the need for his group to file shareholder proposals on the matter in the past six years.

Heim, who spoke on behalf of the Sisters of St. Joseph of Springfield, Massachusetts, added that ConocoPhillips also has begun to meet with concerned shareholders on hydraulic fracturing and its environmental impacts.

Another shareholder representative, Dominican Sister Ceil Roeger of Houston, told Lance and the room of shareholders that climate change and oil-company lobbying are becoming increasingly important issues to a wide range of investors who together have “trillions of dollars” under management.

Those investors, she said, “are not only urging companies to address climate change seriously,” but to “make sure a company’s public policy advocacy does not undercut meaningful legislation or regulation” on climate change.

Roeger acknowledged ConocoPhillips was an active supporter of cap-and-trade legislation proposed several years ago as a measure to limit greenhouse gas emissions.

But she said investors are digging deeper into what the company spends for lobbying by business associations including the American Petroleum Institute and the U.S. Chamber of Commerce.

 “The crisis of climate change is urgent,” she said. “It is our hope that ConocoPhillips’ funds and influence will be used to advance positive solutions.”