ConocoPhillips opposes SEC proxy access proposal

ConocoPhillips officials are urging the SEC to reject a proposal to allow shareholder access to the corporate proxy to nominate directors.

Meanwhile, two shareholder activists complain the rule as proposed would be too weak to have any meaningful impact.

Stephen F. Gates, senior vice president and general counsel at Houston-based ConocoPhillips — the only company so far to file a comment on the proposal of the Securities and Exchange Commission — contends direct shareholder access to corporate proxy statements would undercut the role of the board and its nominating committee, diminish board accountability to shareholders, and potentially promote self-serving agendas not necessarily in the best interest of a company or its shareholders.

Mr. Gates, writing on behalf of the company to the SEC, said the proposal "should not be implemented without careful analysis of all possible consequences."

"We encourage the SEC to … reject these proposals."

Comments on the proposal are due Dec. 22.

But shareholder activists say the proposal, featuring two triggering mechanisms, is not enough.

Ralph V. Whitworth, president of Relational Investors LP, San Diego, said, "The SEC proposal (if adopted) will have only marginal impact because of the trigger mechanisms."

One trigger requires a 35% vote against any corporate director candidate; the other requires shareholders adopt by a majority vote a resolution demanding proxy access. In both cases, the SEC would require a protracted process for nominations, taking place over two annual meetings. Only shareholders owning stock for at least two years and having at least 5% of the firm's shares would be able to nominate candidates.

"The SEC proposal was in response to recent corporate scandals and the lack of confidence in corporate leaders," said Mr. Whitworth, whose firm manages $2.4 billion for institutional investors. "But none of the companies that were victims of the scandals would have triggered the mechanisms."

Patrick McGurn, vice president and director-corporate programs, Institutional Shareholder Services Inc., Rockville, Md., agrees the proposal is too timid. In this past proxy season, he said, such a rule giving shareholder access would probably have been useless in replacing unresponsive directors.

Mr. McGurn said ISS will do an analysis of this past season's proxy vote and the implications of the proposed rule.

When asked her view on the SEC proposal, Cynthia J. Akagi, manager of investments for the $1.2 billion ConocoPhillips pension fund, said, "I'm unfamiliar with it." She declined to comment further.

Other pension executives at major corporations also declined to comment.

"For me, the premise behind the idea was that it wouldn't be used that often by shareholders," Mr. Whitworth said. "But it would be something to spur the board to more introspection and self-policing" on corporate governance.

But he said of the SEC, "I do think the baby was thrown out with the bath water."

"The arguments against it (access) are very specious: that shareholders aren't smart and shouldn't be given that power,"Mr. Whitworth added. "All this is nonsense."

Commenting on one criticism, Mr. Whitworth said, "If a director is nominated by a special interest, the nominee still has to be elected by shareholders. Shareholders won't let someone with special interest be elected to the board."

Mr. Whitworth believes the SEC proposal favors corporations over shareholders.

"I admire the SEC for addressing the issue," Mr. Whitworth said. "But I'm disappointed in the way it's headed. It's doesn't look like it will be constructive. It's not a good start."

Mr. Whitworth, who believes the proposal will be adopted without much change, said he doubted Relational would use the rule, if it were adopted as proposed.

Instead, he said, Relational would use a proxy contest. "It's expensive, but it's faster and straightforward. By the time the trigger mechanism has been triggered, it's too late; it's way past when something should have been done."

Relational, as an investor, and Mr. Whitworth, as non-employee chairman of Apria Healthcare Group Inc., were instrumental in getting Apria's board earlier this year to adopt a policy to allow shareholders to nominate directors, the first company to do so. Under the policy, a shareholder or group of shareholders owning 5% of the stock for two years may nominate two board candidates.

Mr. Whitworth said Relational probably will comment to the SEC, objecting to the form of the proposal.

Mr. McGurn speculates the SEC proposal might have been a compromise to get all the commissioners to support release of the draft rule.

He said the SEC proposal doesn't go far enough to help remedy deficiencies in board oversight, especially to replace unresponsive directors. He said investors need to persuade the SEC to revise its proposal, to make shareholder access more timely and meaningful.

But he said the SEC deserves praise for the proposal.