Bloomberg Businessweek (Europe)

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”

- 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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