Hess Corp. shareholders should elect all five directors nominated by billionaire Paul Singer’s Elliott Management Corp. at a May 16 annual meeting, proxy adviser Institutional Shareholder Services said.
“The dissident nominees appear to have more relevant, robust experience -- particularly boardroom experience -- than the management nominees, but also do not owe any allegiance to the incumbent CEO and directors,” ISS said in a note to clients dated yesterday. Hess, the New York-based oil producer, has underperformed peers and new leadership may improve results, the unit of MSCI Inc. said.
Singer’s Elliott, holder of a 4.52 percent Hess stake, is soliciting shareholder support to get its five nominees on the board, citing “unrelenting underperformance” and mismanagement. At the end of 2012, Hess had dropped 47 percent in five years. The company has gained 36 percent this year as it announced divestitures, a dividend increase and plans for a stock buyback.
The ISS recommendation followed an endorsement of Elliott’s director slate issued May 1 by Glass Lewis & Co. The two firms collectively hold 60 percent of the proxy advisory market for mutual funds and other institutional investors. Egan-Jones Proxy Services, a third adviser, endorsed Hess’s board nominees May 2.
Hess closed its last refinery in February and on March 4 announced it would exit retail, energy marketing and trading to become a pure producer and explorer.
ISS’s recommendation ignores the “economic superiority” of the oil company’s strategic plan, Hess said today in a statement.
“The ISS report is in keeping with an institutional bias toward dissident slates,” Hess said. “ISS has betrayed its own principles.”
Election of dissidents to the board might disrupt the company’s “persuasive, comprehensive strategic plan” to cut costs and lift production, Egan-Jones said.
Glass Lewis disagreed, writing in its May 1 note that Elliott has offered “a compelling case” that an ineffective board at Hess resulted in “substantial damage to shareholder value over most any meaningful time frame and against any applicable peer group.”
Hess has proposed its own replacements for five long-serving board members, including General Electric Co. energy chief executive officer John Krenicki; Kevin Meyers, a former senior vice president of Americas exploration and production for ConocoPhillips; and Mark Williams, formerly on Royal Dutch Shell Plc’s executive committee.
Elliott rejected the company slate, saying board leadership retains close business or personal ties to 18-year Chairman and CEO John Hess, 59, son of founder Leon Hess.
“A lot of stuff they are doing right now is quite reactionary,” David McManus, among the five Elliott board nominees, told investors at an April 30 meeting in New York arranged by the fund. “I’m not sure whether they’re necessarily in the longterm interests of shareholders,” said McManus, a former Shell and BG Group Plc executive.
The other four Elliott nominees are Rodney F. Chase, former chief deputy CEO of BP Plc; Karl F. Kurz, former chief operating officer of Anadarko Petroleum Co; Marshall D. Smith, chief financial officer of Houston-based Ultra Petroleum Corp.; and Harvey Golub, former CEO of American Express Co.
“I would look forward to entering that boardroom trying to put behind any tensions that may have been created through the strangeness of this proxy battle,” Chase told investors at the April 30 meeting. “There is only one position for directors to take: We represent the interests of shareholders.”