Zom­bie board mem­bers con­tinue to walk the halls at Nabors In­dus­tries

A com­pany’s di­rec­tors stay put af­ter share­hold­ers vote them out Nabors re­fuses “to adopt ma­jor­ity sup­ported gov­er­nance re­forms”

Bloomberg Businessweek (Europe) - - CONTENTS - Caleb Melby and Ali­cia Ritcey, with David Wethe

In­vestors in Nabors In­dus­tries have big con­cerns, in­clud­ing how the oil driller pays its ex­ec­u­tives, a lack of di­ver­sity on its board, and how it com­mu­ni­cates with own­ers. In a sign of dis­ap­proval, a ma­jor­ity of share­hold­ers voted to oust three di­rec­tors in a June 7 elec­tion. Those di­rec­tors du­ti­fully ten­dered their res­ig­na­tion—but they’ll be keep­ing their jobs.

Lead di­rec­tor John Year­wood failed to get a ma­jor­ity of share­holder votes at the last four an­nual meet­ings. The re­spon­si­bil­ity to ac­cept his res­ig­na­tion would nor­mally lie with the gov­er­nance and nom­i­nat­ing com­mit­tee. Who heads that com­mit­tee? Year­wood does. Who are its other mem­bers? Michael Linn and Howard Wolf, the other two di­rec­tors who were voted out.

To avoid hav­ing the three de­cide

their own fates, Nabors’s board ap­pointed a spe­cial com­mit­tee of in­de­pen­dent di­rec­tors. That panel rec­om­mended that the trio stay put. The board then voted unan­i­mously to re­ject the res­ig­na­tions, ac­cord­ing to a June 13 com­pany fil­ing. It’s the fourth year in a row the board has used such a tac­tic to over­rule a share­holder vote.

Nabors, based in Ber­muda but with head­quar­ters in Hous­ton, has a “long­stand­ing his­tory of in­ad­e­quately re­spond­ing to, or to­tally dis­re­gard­ing, ma­jor­ity share­holder votes,” Di­eter Waizeneg­ger, ex­ec­u­tive di­rec­tor of pen­sion fund ad­viser CtW In­vest­ment Group, wrote to in­vestors be­fore the vote. “This in­cludes per­sis­tently renom­i­nat­ing di­rec­tors who have pre­vi­ously been re­jected by share­hold­ers and re­fus­ing to adopt ma­jor­ity sup­ported gov­er­nance re­forms.”

In the fil­ing, Nabors said the board “con­sid­ered the cur­rent struc­ture and needs of the board, the com­pany’s cur­rent strate­gic needs, share­hold­ers’ ex­pressed rea­sons for with­hold­ing votes, ac­tual vote counts, and the con­tri­bu­tions and an­tic­i­pated roles” of the three di­rec­tors. Nabors didn’t re­spond to re­quests for com­ment. The com­pany’s by­laws con­sider share­holder votes on di­rec­tors to be ad­vi­sory.

So-called zom­bie di­rec­tors are fairly com­mon when there are no other can­di­dates for the seats of the di­rec­tors share­hold­ers want to oust, ac­cord­ing to the Coun­cil of Institutional In­vestors. Only 43 di­rec­tors of com­pa­nies in the Russell 3000 in­dex failed to win ma­jori­ties last year, but 38 stuck around, CII’s data show. A proxy mea­sure from some share­hold­ers called for al­low­ing in­vestors who own at least 3 per­cent of shares for three years to nom­i­nate can­di­dates for board seats. Nabors’s cur­rent board nom­i­na­tion pol­icy, lim­it­ing a sin­gle holder of 5 per­cent of shares for three years to mak­ing a sin­gle board nom­i­na­tion, “con­tains re­stric­tions vir­tu­ally un­seen” in the S&P 500 and Russell 3000, says ad­vi­sory com­pany Institutional Share­holder Ser­vices (ISS). The com­pany’s feud with in­vestors is ex­cep­tional for how long it’s lasted. Most com­pa­nies typ­i­cally make changes af­ter a ma­jor­ity of own­ers reg­is­ter their un­hap­pi­ness. Nabors is among a hand­ful that have done lit­tle to ad­dress share­holder com­plaints. ISS rec­om­mended that in­vestors vote against all the Nabors di­rec­tors at the June 7 meet­ing “due to the fail­ure of the board to fully im­ple­ment two share­holder pro­pos­als which had re­ceived ma­jor­ity sup­port of votes cast” last year, “mark­ing yet an­other year of fail­ure to re­spond to con­cerns ex­pressed by the broad swath of share­hold­ers.”

In six votes Nabors has held on its ex­ec­u­tive com­pen­sa­tion plans, in­vestors have shown ma­jor­ity ap­proval only once, in 2015, when the com­pany cut com­pen­sa­tion for Chief Ex­ec­u­tive Of­fi­cer An­thony Pe­trello, whose $68 mil­lion pay pack­age in 2013 made him one of the high­est-paid bosses in the oil and gas in­dus­try that year.

In the June 7 vote, the com­pany failed to get sup­port for last year’s com­pen­sa­tion plan af­ter Pe­trello’s pay al­most dou­bled, to $27.7 mil­lion from $14.8 mil­lion, be­cause of a merger-re­lated bonus. Nabors’s mar­ket value has plunged to less than $3 bil­lion, about a third of its value two years ago, as a crude glut weighs on shares of oil com­pa­nies.

The bot­tom line For four straight years, Nabors In­dus­tries has ig­nored votes by its share­hold­ers and kept di­rec­tors whom its in­vestors had dumped.

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