UPDATE 3-John Hess to lose chairman role as Hess board vote looms

Fri May 10, 2013 10:39am EDT

* Company faced proposal on CEO/Chairman split at annual
meeting
    * Activist investor has challenged company, nominated
directors
    * Shareholders to vote on new board at May 16 meeting


    By Michael Erman and Swetha Gopinath
    May 10 (Reuters) - John Hess is being stripped of his
chairman duties at Hess Corp, as the oil and gas company
scrambles to avoid an embarrassing defeat by an activist
investor.
    Hess Corp said on Friday that it will separate the roles of
chairman and chief executive immediately following its annual
meeting next week. 
    John Hess -- the son of Hess Corp founder Leon Hess -- has
held both roles since 1995. He will remain CEO and a director at
the company.
    In addition to the slate of board nominees backed by hedge
fund Elliott Management, shareholders were also set to vote on a
proposal to break up the two positions at next week's annual
meeting. Hess had recommended shareholders vote against the
split.
    "We understand our shareholders` views, and recognize that
our corporate governance structure should have been improved
sooner," John Mullin, Hess`s lead director said in a statement.
"Separating the roles of Chairman and CEO and declassifying our
Board reflects our commitment to shareholders."
    Elliott Management, which owns a 4.5 percent stake in Hess,
has been clamoring for change at the company since January, when
it launched its campaign to seat the new directors and pitched a
plan to break up the company. The hedge fund has railed against
the current board, alleging that directors are too closely tied
to Hess Chief Executive John Hess and that poor oversight has
led to underperformance.
    Elliott said in a statement that it didn't view the move as
a concession by Hess.
    "A resolution to split the Chairman & CEO roles at Hess is
on this year's proxy," the hedge fund said. "It is significant
to note that Hess's Board recommended against this split only a
few weeks ago."
    
    BOARD VOTE
    As the company has mounted its defense against Elliott's
arguments, Hess has announced plans to exit its retail gasoline,
marketing and trading businesses and assembled its own slate of
new independent directors for its board. 
    Shareholders will vote on whether to seat the Hess nominees
or Elliott's slate on May 16.
    Should Hess prevail, it plans to appoint former General
Electric executive John Krenicki, to head its board.
    The company said that John Hess supported the decision to
break up the CEO and chairman roles. 
    Analysts said pressure from investors had accelerated the
company's long-term plan to focus on exploration and production.
    Proxy advisory firms ISS and Glass Lewis have recommended
that Hess shareholders elect the board members nominated by
Elliott Management. Another advisory firm, Egan Jones, has
backed Hess's nominees.
    "Regardless of whether Elliott wins the bid for their
proposed board seats, Hess has become more Street-friendly in
the midst of the proxy fight," analysts at investment bank
Tudor, Pickering, Holt & Co said.
    Also on Friday, Hess said it would start a "board renewal
process" through which the majority of the board would comprise
new directors by the end of 2013, in addition to the six new
directors slated for election at the May 16 annual meeting.
    Another U.S. oil company, Occidental Petroleum Corp,
bowed to shareholder pressure last month and changed its
policies to prevent former CEOs from serving on the board.
 
    Through Thursday's close, Hess's shares have gained 13.6
percent since the company's disclosure on Jan. 29 that Elliott
was trying to break up the company. Its shares fell 1.7 percent
to $69.57 on Friday morning on the New York Stock Exchange.
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