Public controversy prior to Occidental Petroleum’s recent acquisition
of Anadarko Petroleum epitomizes the pressure boards can face in supporting a CEO caught in the spotlight of scrutiny. The company’s planned $38 billion acquisition of Anadarko Petroleum prompted the activist investor Carl Icahn to launch a high-profile proxy battle protesting the deal.
Occidental stayed the course, its board standing by CEO Vicki Hollub, who succeeded in outbidding Chevron this spring after studying the opportunity for two years. The transaction brings Occidental nearly a quarter million acres in the productive Permian Basin, the top U.S. shale field. Occidental will now control 1.64 million acres of prime drilling and gain access to fields in Colorado and Wyoming.
Some analysts, however, felt the biggest energy deal of the year was too big a stretch for Occidental, given the leveraged financing entailed, as well as the new domain for Occidental and the fact that Hollub, by her own admission, lacked M&A expertise. Icahn attacked the deal as “misguided” and called for a special shareholder meeting to replace four directors with his own nominees.
The company countered that the deal is easily covered with $15 billion of planned divestitures and support from Warren Buffett, while challenging the credentials and track record of Icahn—apparently for good reason. Six out of seven of Icahn’s most recent energy investments dramatically underperformed the market. His controlling investments, for example, in Transocean, Sandridge, Talisman and Chesapeake Energy led to billions of dollars of losses, plus helped drive Dynegy into bankruptcy.
While Occidental Petroleum’s stock price has dropped since the challenged merger went through, its board’s support for Hollub remains an inspiring example for other directors backing CEOs who come under fire from the investment community. Standing firm is no easy feat. Every month, prominent boards are pressured to take action by outsiders critical of management and many succumb—in some cases, too easily.
Just 18 months into his job, HSBC CEO John Flint was ousted by his board, which acted on lagging performance rather than a crisis or scandal. Noel Quinn, the bank’s global commercial banking unit head, was made interim CEO until Flint’s successor is named.
Of course, no board member likes controversy, and many of the most vocal activist investors and political activists who target CEOs do so by pressuring board members during vulnerable periods. Sadly, that is how we have seen top-performing CEOs such as Ellen Kullman of DuPont, Mark Fields of Ford and Klaus Kleinfeld of Arconic/Alcoa lose their positions.
At the same time, CEOs at firms like Facebook and Tesla remain in place, despite misstatements to the public and their own boards. And other leaders accused of negligence and misconduct, such as those at Equifax and Uber, weather months of scathing public criticism before board action.
To wade through the smoke of controversy to assess the virtues or failings of their CEOs and determine whether to defend a CEO under attack, board members should ask themselves the following questions:
1. Do you trust the integrity of your CEO? Has he or she told you the truth and been honest with all stakeholders and involved parties—investors, regulators, customers, media, employees and communities?
2. Are you comfortable with the technical expertise and managerial competence of your CEO, or could the board provide better support?
3. Does your CEO confide in the board in real time before engaging in risky decisions, soliciting board perspectives?
4. Does your CEO cut out dissenters in management or shield issues from certain board members?
5. Are you prepared to avoid the temptation to scapegoat an earnest, hardworking CEO—and not throw an innocent person under the bus to diffuse the pressure in our rush to vilify?
As the late Columbia historian Alan Brinkley’s essay, “The Potent Culture of Scandal,” warned: “An indiscriminate preoccupation with scandal can be as dangerous to a democratic society as an excessive toleration of corruption. Inadequate attention to corruption can be relatively easily remedied. But our current culture of scandal—in which so many people and institutions now have a considerable stake—will not be easily dismantled. In the meantime, the already high price of participating in public life will grow even higher.”
