Nine Pension Funds Seek Proxy Access Bylaw at Nabors Industries
Coalition cites record of excessive compensation, low accountability
WEST SACRAMENTO, CA – The California State Teachers’ Retirement System (CalSTRS) is part of a group of nine public pension funds that has filed a shareholder resolution asking the board of directors of energy-drilling company Nabors Industries to grant substantial, long-term shareholders the right to nominate directors using the company’s proxy statement.
“Expropriating the corporate treasury to fund egregious CEO pay packages at shareholder expense is both a symptom and a consequence of Nabors’ entrenched board,” said New York City Comptroller John C. Liu, who submitted the proposal on behalf of the City’s five pension funds. “The only way to fix a recalcitrant board is to enable shareholders to elect directors other than those nominated by that same board.”
The funds are part of a larger group of 11 public institutional investors 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 triggers 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 52 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.
“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,” said Connecticut State Treasurer Denise L. Nappier. “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.
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.
The California State Teachers’ Retirement System, with a portfolio valued at $148.2 billion as of October 31, 2011, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of a traditional defined benefit, cash balance and defined contribution plan, as well as disability and survivor benefits. CalSTRS serves California’s 852,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.