Occidental Fights Watchdog Panel for Shareholder Rights

Occidental Petroleum Corp. is fighting an unusual proposal by the state employees’ pension system, one of Occidental’s largest shareholders, to create a watchdog advisory committee to its board to look after shareholder interests.

In two separate letters--the latest dated last Tuesday--the company has voiced lengthy objections to the proposal by the $56-billion California Public Employees’ Retirement System to create a shareholders advisory committee of at least nine members. CalPERS holds 1.74 million Occidental shares, about 0.6% of the total outstanding.

The proposal was contained in a December letter to Occidental’s longtime chairman, Armand Hammer, in which CalPERS Chief Executive Dale M. Hanson asked that the proposal be included in company proxy statements to be mailed before the annual shareholders meeting in May.

The proposal was the latest in a series of actions--including lawsuits challenging the company’s financing of a museum for artworks Hammer owns--by Occidental shareholders who are frustrated at what they argue is the company’s disregard for their interests.

“Our proposal illustrates a general dissatisfaction with Oxy management,” said Kayla Gillan, CalPERS assistant general counsel. “Our proposal would create a means for shareholders and directors to communicate directly with one another.”

Jerome L. Coben, a lawyer representing Occidental, said Monday: “We believe the company has been constantly responsive to shareholders through the regular shareholder communication process. Our objections are founded upon certain technical difficulties with the proposal and its implementation.”

Although the proposal does not specifically refer to the museum dispute, CalPERS has requested and been granted permission to intervene in a lawsuit against the oil company, brought by dissident shareholder Alan R. Kahn, challenging construction of the Hammer museum adjacent to Occidental’s Westwood headquarters building. CalPERS also filed its own complaint in the dispute.

A second shareholder suit opposing the museum has been settled.

Shareholder rights advocates applauded the pension system’s proposal, which they said reflected a new mood of activism on the part of institutional investors, led by public pension plans such as CalPERS.

“It’s a novel approach that demonstrates the frustration of shareholders today,” said Ralph Whitworth, director of the United Shareholders Assn., an advocacy group founded by financier T. Boone Pickens Jr. “Any type of input that they can get is better than what they have now,” especially at Occidental, he added.

Occidental has not responded to CalPERS concerning the proposal.

But Occidental lawyers have sent two separate letters to the Securities and Exchange Commission, requesting permission to omit the proposal from proxy materials.

The first letter, a three-page missive from Occidental’s in-house counsel, argues that the proposal would unduly favor large shareholders, such as CalPERS, and that the pension system intends to use the proposal improperly to further its legal claims against Occidental in the museum litigation. Occidental also called the proposal vague and misleading and maintained that its directors already consider shareholder concerns.

The second letter--nine pages long and dated two weeks later--came from outside counsel at legal powerhouse Skadden, Arps, Slate, Meagher & Flom on behalf of the company, and significantly amplified the company’s initial objections.

The SEC has not issued an opinion in the matter. CalPERS will file a rebuttal to Occidental’s objections with the SEC, Gillan said.

Members of the shareholders advisory committee that would be created under the CalPERS proposal would be chosen annually from among outside owners of at least 1,000 shares of voting stock, with at least five of the members to be picked from the 50 largest shareholders.

The procedure for selecting committee members would be established by the board. The committee would have no authority to veto board actions.

“The committee structure merely creates a means to enable such actions to be taken with full consideration of the views of stockholders,” CalPERS said in a supporting statement intended to accompany the proposal in proxy statements.

It is not the first time that CalPERS has made such a proposal. Similar ones have gone to Avon Products, Texaco Inc. and TRW, although none has resulted in the creation of advisory committees.

In Texaco’s case, CalPERS withdrew its proposal once Texaco agreed to appoint a board member of whom CalPERS approved.

In the case of TRW, the company sought SEC permission not to include the CalPERS proposal in its proxy materials; the SEC denied the request and ordered the proposal included in the proxy, Gillan said. CalPERS subsequently withdrew that proposal after TRW executives agreed to meet with pension system officials, Gillan said.

The proposal to Avon is pending, she added.