Bermuda-based energy-drilling contractor Nabors Industries Ltd., already being sued by shareowners over executive pay issues now faces a proxy access proposal filed by CalSTRS and nine public pension funds from Connecticut, Illinois, New York and North Carolina. The company’s stock has lost about a quarter of its value this year. According to New York City Comptroller John C. Liu, who submitted the proposal on behalf of the City’s five pension funds,
Expropriating the corporate treasury to fund egregious CEO pay packages at the shareholder’s expense is both a symptom and a consequence of Nabors’ entrenched board. The only way to fix a recalcitrant board is to enable shareholders to elect directors other than those nominated by that same board.
According to a press release from CalSTRS, the funds are part of a larger group of 11 public funds that called upon the Nabors’ board in a September 29 letter (PDF; 61KB) to implement governance reforms, including replacing three directors, naming an independent chair, and adopting a majority vote standard. The funds decided to file the resolution after the company failed to implement most of the requested reforms.
“Nabors has a long history of poor governance, including a board that has consistently been unresponsive to shareholder concerns,” said Janet Cowell, State Treasurer of North Carolina. “The company has a record of awarding excessive CEO compensation and perks, despite long-term underperformance.”
In October, Nabors announced that Eugene Isenberg, CEO and chairman of Nabors, would step down as CEO but remain as chairman. This arrangement triggered a clause in Isenberg’s employment contract entitling him to $100 million in cash and an additional $90 million worth of other benefits.
In June, the Wall Street Journal revealed that Isenberg used Nabors’ jets for extensive travel to New York City, Palm Beach, and Martha’s Vineyard; the company disclosed last month that the Securities and Exchange Commission has launched an investigation into perks received by its executives. Proxy advisory firm Glass Lewis has given Nabors an “F” for its pay-for-performance model, the worst possible rating, over the last three years.
Shareholders have communicated a lack of support for Nabors’ directors in recent elections. Directors John Lombardi and James Payne, members of the compensation committee, received only 48 percent of the vote in 2010, despite running unopposed. In 2011, Director Myron Sheinfeld of the governance committee failed to win majority shareholder support, receiving only 38 percent of the votes. Connecticut State Treasurer Denise L. Nappier says,
Shareholders want systematic corporate governance reforms at Nabors, including shareholder access to the proxy for director nominations, and executive compensation based on merit and corporate performance. Nabors has been on my radar screen for some time now, and it’s high time that it fully gets its act together with comprehensive reform.
The resolution submitted by the funds calls for Nabors to amend its bylaws to allow shareholders holding at least 3 percent of the stock for three years to nominate no more than 25 percent of the board and place the names on the ballot. The terms are the same as those in an SEC rule approved in 2010 that the U.S. Chamber of Commerce and Business Roundtable successfully challenged in federal court. They also appear to be the same as those included in a recent November 15 newsletter from Latham & Watkins LLP. (see “Large Number” of Proxy Access Bylaws Predicted: Battle Lines Drawn for American Dream & Ownership Society)
The investor coalition collectively owns 1.78 million shares of Nabors Industries valued at over $31.7 million (does not include Maryland). The members of the coalition are: the California State Teachers’ Retirement System, the North Carolina Retirement Systems, the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, the New York City Board of Education Retirement System, the Illinois State Board of Investment, the Connecticut Retirement Plan and Trust Fund, the Oregon State Treasurer and the Maryland State Retirement and Pension Fund. Oregon and Maryland did not join in filing the shareholder resolution for the annual meeting scheduled for next June. See also Pension Funds Add Pressure to Nabors, WSJ, 12/14/2011.
In addition to the above, proxy access resolutions have been filed at the following:
- Amalgamated Bank proposal filed at Hewlett-Packard.
- Norges Bank proposals at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources and CME Groupas.
- United States Proxy Exchange type proposals filed at Chiquita Brands International Inc. (Chevedden), Goldman Sachs (McRitchie), Bank of America (Steiner), Ferro Corp. (Steiner), Sprint Nextel Corp. (Steiner), Textron Inc. (Steiner), and MEMC Electronic Materials Inc. (Steiner).
At Chiquita a potential payment of over $21.3 million (more than 21 times his salary) to CEO Fernando Aguirre is deemed by GMI as “not in the interests of shareholders as it presents a conflict of interest.” He appears incentivized to seek a change in control, rather than improving performance. During the last decade the stock has lost about 20%, while the broader market has gained about 40% in value. Chevedden concludes the board requires new blood with new ideas to turn things around.
See also, Proxy Access Proposals Filed at HP and Goldman Sachs, ISS, 12/9/2011 and Public Funds File Proxy Access Proposal at Nabors Industries, ISS, 12/13/2011)