Phillips 66 said Wednesday it will make its own proposal for board declassification as it warned against a similar proposal by investor Elliott Investment Management LP.
Elliott, which has a declared investment of over $2.5 billion in the Texas-based refiner, had said it would put forward a non-binding proposal before Phillips 66’s yearly meeting of shareholders for the company to introduce annual board elections.
“Elliott’s proposal requests that the Board adopt a corporate governance policy under which each incumbent director would be required to commit to a one-year term at each annual meeting making all Board seats open annually”, Elliott said in an online statement March 4.
“The policy is a practical approach to enhance Board accountability to shareholders, align with governance best practices and respond to the recurring strong support from Phillips stockholders for annual director elections in response to an onerous supermajority voting requirement to amend the Company’s Charter”.
On Wednesday Phillips 66 issued a press release about its agenda for the meeting. The statement said the company will request shareholders “to approve the declassification of the Board by amending the Company’s certificate of incorporation and by-laws, as it has done five times before over the past decade”.
“Elliott is seeking shareholder approval of a request for the Board to adopt a policy to implement a required annual resignation of all directors”, Phillips 66 said. “Elliott’s proposal is merely a distraction and contravenes several elements of the Company’s organizational documents, in violation of well-established principles of Delaware corporate law.
“The Board strongly urges shareholders who wish to properly declassify the Board in accordance with the Company’s governing documents to vote AGAINST Elliott’s proposal and in support of management’s proposal”.
Elliott has yet to reply to a request for comment emailed by Rigzone.
Phillips 66’s past declassification proposals failed to reach the 80 percent vote threshold, according to the company.
Wednesday’s statement also revealed Phillips 66 will make four nominations for the board election at the meeting, including one already appointed last year on Elliott’s insistence.
Elliott has been calling for a revamp of the board to remedy what it sees as persistent underperformance. Early last year Phillips 66 agreed to name Robert W. Pease, who had held senior roles in different firms including Shell Trading (U.S.) Co., to its board and to work together with Elliott to identify a second mutually agreed director, according to a company statement February 13, 2024.
On Tuesday Elliott complained before Delaware’s Court of Chancery to force Phillips 66 to open at least four director seats for election at the meeting.
“Despite Elliott privately requesting confirmation, Phillips has still not disclosed how many seats will be up for election or who its nominees will be, requiring Elliott to file a complaint in order to preserve its shareholder rights”, Elliott said in an online statement. “The Company’s current gamesmanship around its directors follows the Company’s previous failure to honor its representations made to Elliott – dating back to February 2024 – that it would appoint a mutually agreed-upon director with energy experience.
“In its complaint, Elliott states that if the Company ends its defensive maneuvers and confirms that at least four director seats will be up for election at the 2025 Annual Meeting, Elliott intends to withdraw the complaint and no longer proceed with the litigation”.
Elliott added, “This preference for gamesmanship and disregard for stockholder rights demonstrated by Phillips reinforces why change is urgently needed on the Board in order for the Company to achieve its full value-creation potential”.
Elliott has nominated seven candidates with the “best-in-class experience in refining and midstream operations”, including an Elliott partner, for the election, as revealed in Elliott’s March 4 statement.
Two of Phillips 66’s 14 seating directors, 13 of whom are independent according to the company, have decided not to stand for re-election, according to a disclosure with the Securities and Exchange Commission (SEC) February 12.
In a reply to a request by Rigzone for comment on Elliott’s suit, a Phillips 66 spokesperson pointed to the company statement released Wednesday.
In a letter to shareholders March 5, Phillips 66 expressed confidence in its board, highlighted its progress toward operational targets and said it is committed to transparency and accountability.
“Nevertheless, we remain fully committed to constructive engagement and finding a path forward with Elliott that will benefit all shareholders”, stated the letter, published on the Securities and Exchange Commission portal.
“The Board continuously and aggressively evaluates the portfolio and other alternatives with a view to maximizing long-term shareholder value – and is willing to take decisive action to achieve this goal”, the letter added.
To contact the author, email jov.onsat@rigzone.com
