Occidental chief’s likely departure is a victory for activist investors

Occidental Petroleum Corp.’s Ray R. Irani has wooed the international potentates of petroleum. But his extravagant pay and the same succession fears that helped him replace Oxy’s nonagenarian founder Armand Hammer 20 years ago are pushing the 75-year-old chief executive out of the Los Angeles company’s daily operations.

Irani is expected to announce in October that he will step aside as chief executive in 2011 but would remain on the board, people with knowledge of the plan said Tuesday. His expected successor is President Stephen I. Chazen, who received the additional title of chief operating officer only a month ago.

Irani’s eventual departure as CEO, and a frugal executive compensation system that Oxy’s board may adopt next month, will mark the end of an era at the oil company as well as a victory for activist investors.

“Like anything else in life, it is time for it to happen,” said Fadel Gheit, a senior energy analyst at Oppenheimer & Co. “There needs to be a national debate on how much top executives should earn. And every company needs its usual suspects, a clear line of who its successors will be, and Occidental did not have that.”

Irani last year earned more than $30 million. Some Occidental investors have been complaining about Irani’s compensation for years, but the backlash gained momentum last month when two of the company’s big institutional investors, the California State Teachers’ Retirement System and the Relational Investors fund, told Occidental executives that they were targeting at least four members of the 13-member board to gain influence.

Occidental clearly was listening. Occidental board member Spencer Abraham, chairman of its executive compensation and human resource committee, has been crisscrossing the U.S., listening to and briefing shareholders on a proposed overhaul of Occidental’s executive compensation plan that would reduce what top employees could earn. Abraham said in an interview that the plan and other initiatives should be ready to present for a vote by the board of directors at its next meeting, in October. Abraham declined to share details of the plan because it was still being developed.

“I’m very confident that we will be in a position, at our next meeting of the compensation committee and the full board, to make very significant changes in the company compensation structure that will bring us very much in line with our peers,” said Abraham, a former Republican senator from Michigan who also served as energy secretary.

Irani will hand over the reins of a company that is far different from the one he took over from Hammer in 1990. Then, it had far-flung interests beyond the usual scope of an oil company, with holdings in a Chinese coal mine, film production, a hybrid-seed research unit and cattle and horse-breeding operations.

Today, Occidental Petroleum is the nation’s fourth-largest oil company, with a reputation for finding surprising amounts of crude in old fields, sparring successfully with bigger competitors in making Middle East oil field partnerships and being disciplined in everything but how much Irani earned.

“When I look around at the 25 to 30 companies I usually follow, I see Occidental as one of the best run of them all,” said Phil Weiss, an energy analyst with Argus Research, who noted, as an example, Occidental’s tripling of net profits in its most recent quarter. Irani, Weiss said, was a big reason for the success.

“With his business connections in the Middle East, he can make deals that really shouldn’t be possible for a company of Occidental’s size,” Weiss said.

Irani’s reputation was formed early on, when he graduated with honors from the American University in his hometown of Beirut in 1953 and earned a doctorate in physical chemistry from USC four years later.

Over the next 30 years, he rose through the ranks of some of the nation’s best known chemical companies, ending up as president of Olin Corp. in 1980. Along the way, he racked up 50 U.S. patents, more than 100 foreign patents, published more than 50 technical articles and wrote a chemistry text.

But his biggest deal came when he joined Occidental in 1984 and was named president and chief operating officer. Five times before, top-flight executives had been brought in as eventual successors to Armand Hammer, but Hammer found them unsuitable. The only one he favored was Irani.

Now, the corporate climate, the struggling economy and BP’s fatal oil accident in the Gulf of Mexico have combined to place greater scrutiny on the oil industry.

“It’s been a snowball effect from all of those factors,” said Bruce Bullock, executive director of the Maguire Energy Institute at Southern Methodist University. “Irani has had a great track record, but these companies have become very sensitive to anything that might portray them in a negative light.”

ron.white@latimes.com