Tough Times at Occidental Petroleum

Occidental Petroleum is the fourth largest oil company in the United States.  From 2000 until 2010, a greater than 600 percent increase in its stock price reflected impressive performance.  However, in the last few years its performance has been much more subdued amid signs of internal tension.  In 2010, shareholders revolted over the compensation package being offered to its then-CEO Ray Irani, who is estimated to have received $850 million over the previous decade.  A 2010 Los Angeles Times article stated that this staggering compensation was due in part to the easily-met incentive clauses in Irani’s contract.  The board subsequently reduced Irani’s compensation; he stepped down as CEO in 2011 but stayed on as chairman.  The Wall Street Journal has reported that he and his replacement, Stephen Chazen, are rumored to be engaged in a power struggle, with Irani allegedly attempting to push out Chazen.  The feud may be attributable to Chazen’s failure to strongly back Irani during the shareholder revolt, or Irani’s displeasure with his wealth being adversely affected by Occidental stock’s recent performance.

Occidental’s shareholders are most likely unhappy with the publicity over the company’s internal tensions, especially in light of the publicity regarding Irani’s compensation a few years ago.  The company’s recent poor performance has caused a few analysts to float the idea of a corporate restructuring, similar to the way industry giant Chevron restructured in recent years.  The power of unhappy shareholders to put pressure on a board of directors is illustrated by Hess Corp.  Its activist shareholder Elliott Management Corp. recently made news by demanding new board members as well as a spinoff of Hess’s North Dakota operations.  Whether Occidental’s shareholders will begin to publicly exert similar pressure is uncertain, but it is clear that the company’s fantastic run from 2000 to 2010 now seems like long ago.

Facebook Comments