The state's second-largest public pension fund and a private equity investment partner will try to unseat four directors of Occidental Petroleum Corp. over concerns about the Los Angeles oil company's high executive pay and lack of a management succession plan.
The California State Teachers' Retirement System and activist investor group Relational Investors of San Diego told Occidental in a letter that they would seek shareholder votes for their slate of candidates at the oil company's annual meeting next May. The two investors control about 1% of Occidental's shares.
"As a long-term shareholder in Occidental, CalSTRS wants to see an institutional process in place for succession planning to ensure that the excellent returns we've enjoyed so far will continue," said pension fund spokesman Ricardo Duran.
Both the teachers fund and Occidental confirmed that the letter was sent Friday, but neither would release its contents.
The $130-billion pension fund, known as CalSTRS, has for more than a year opposed the company's executive compensation. Occidental Chief Executive Ray Irani, 75, was the fourth-highest-paid executive in California last year, earning $34.4 million, a 39% increase from the previous year.
"We support extraordinary pay for extraordinary performance, but not wildly excessive pay," CalSTRS said in a letter to Occidental last year. "By setting awards too high and targets too low, Oxy's board essentially set up a giveaway program where tens of millions of dollars of pay is not truly at risk."
The tough stand against Occidental was in line with the votes taken by a majority of Occidental's shareholders in a nonbinding "say-on-pay" ballot last year.
Last year, CalSTRS voted against reelecting all incumbent Occidental board members. Now the fund is ramping up its effort, putting the oil company on notice that it will seek a slate of its own board members at the May 2011 shareholders meeting.
On Monday, the company announced it was shaking up management by appointing James Lienert as its new chief financial officer, replacing Stephen Chazen, 63, the chief financial officer since 1999. Spokesman Richard Kline said the change showed that Occidental was paying attention to the complaints from its shareholders.
"As we've said previously, the board has been deeply engaged in succession planning for some time, and today's announcement is clearly part of that process," Kline said.
Directors last year appointed a new compensation committee chairman. That director, Kline said, "has been meeting with investors and is expected in the next two months to make recommended changes that we believe are responsive to investor sentiment as expressed in the vote."
CalSTRS called the CFO appointment "a long-overdue, positive first step." Unfortunately, Duran said, it's seen as "reactive to issues brought to the board by shareholders outside the boardroom. A vigorous board would have been proactive."
The quickening drumbeat of shareholder criticism appears to be having an effect on Occidental's corporate governance, shareholder-rights advocates said.
"When the company realizes you have some muscle behind you, it generally sits down and talks to you," said Pratap Chatterjee, a senior editor with CorpWatch, a San Francisco group that investigates corporate malfeasance.
Now is a good time for CalSTRS and other corporate reformers to put the pressure on big companies, Chatterjee said.
"People are very aware there aren't jobs; they can't pay their mortgages. Here these people are making, like Mr. Irani, close to $1 billion over a decade," he said. "That's a punch to the gut for people. They're starting to say, 'This is not OK.' "
On Monday, Occidental shares gained $2.26, or 2.9%, to $80.19.