El Paso Directors Hold On to Seats

HOUSTON — El Paso Corp. shareholders kept faith in the current management Tuesday, the company’s interim leader said, rejecting a dissident slate of directors unhappy over falling stock prices, junk credit ratings and massive debt.

The management victory, which acting Chief Executive Ronald Kuehn said was by a tentative 5% margin, ended a bitter, months-long proxy fight that was a key test of dissident investors’ ability to force change in corporate America.

It signaled that shareholders weren’t angry enough about the energy company’s 90% drop in shareholder value since early 2001 to trust a short-on-details plan from dissidents who vowed to boost earnings.

A final tally will not be available for a few weeks, Kuehn said.

Selim K. Zilkha, who led the dissidents, briefly addressed the crowd of more than 1,500 shareholders, most of whom appeared sympathetic based on warm applause for the announced slate and silence for the incumbents.

Zilkha said he launched the contest to change El Paso “from a culture that rewards poor performance with outrageously generous severance packages while shareholders suffer, to a culture that is based on responsibility where the board and management make decisions based on what will benefit the company and shareholders, not what will maximize personal gain.”

The nine dissidents pushed to oust El Paso’s 12 incumbent directors, including Kuehn, saying current leadership fostered a culture that approved risky investments and overpaid top executives as the company’s stock fell from $74 in February 2001 to as low as $3.33 this winter.

But shareholders stuck with the incumbent board, which includes four directors with oil and gas industry experience appointed since January.

Kuehn was conciliatory in remarks before the results were announced. “El Paso is a great company with world-class assets and employees,” he said. “Starting today, we move forward together with one voice and one goal.” He added later: “Clearly we have to work very hard to get the support of the people who supported Mr. Zilkha’s slate, and we will.”

Zilkha said shareholders are demanding “that there will be no backsliding and no return to the practices of the past.”

Kuehn will remain a director when the company chooses a permanent CEO in coming weeks. He said last week that El Paso has narrowed the field to five finalists, including three current chief executives and one chief operating officer in energy companies. All wanted to wait for the end of the proxy contest before committing, he said.

El Paso shares rose 37 cents to $9.04 on the New York Stock Exchange.

Kuehn took the helm when El Paso fired William Wise in March, two days after Zilkha made the proxy contest official in filings with the Securities and Exchange Commission. Such fights are rare because they can be very expensive for dissident shareholders to mount.

Kuehn led El Paso’s efforts to convince shareholders that the nation’s largest natural-gas pipeline company wasn’t another Enron Corp., despite emulating that company’s forays into money-losing ventures such as energy trading and telecommunications. Burdened with debt, El Paso has sold billions of dollars worth of assets and renewed its focus on its core businesses.