Occidental Petroleum Corp. said Monday it will keep CEO Steve Chazen through the end of 2014 and replace Chairman Ray Irani with an independent board member, defusing a struggle over the future leadership of the oil company.
The announcement follows weeks of lobbying by the board of directors to convince investors to vote to keep Mr. Irani in place during this Friday's annual shareholder meeting and to explain a surprise move, announced in February, to replace Mr. Chazen.
Some shareholders balked at the move, arguing that Mr. Irani, who preceded Mr. Chazen at the helm of the company, played an influential role behind the scenes to push out the current CEO.
Monday's announcement may quell a protracted boardroom battle at the fourth-largest oil and gas company in the U.S. by market value, and may allow Mr. Chazen time to boost Occidental's lackluster shares by selling or spinning off assets, an idea discussed at an earnings conference call last week.
"The Board believes that this action reflects the extensive feedback the company has received from shareholders, who also indicated a strong desire to move forward with other corporate governance and executive compensation changes," the company said in the statement.
It's not clear when Mr. Irani will step down from the executive chairman post. Previously he was scheduled to retire at the end of 2014. A company spokesman has not yet returned calls for comment.
The company said it will also adopt a number of changes in its governance and compensation policies, including barring former CEOs from the chairman post, adding two new directors with energy industry experience, and cutting pay for board members and the CEO.
Some activist investors previously critical of Occidental's governance practices lauded Monday's announcement.
"The board needed to quell mounting investor concern and confusion it helped create regarding a reported boardroom struggle and leadership crisis," said Michael Garland, an assistant city comptroller for New York City, whose employee pension funds own 2.35 million shares of Occidental Petroleum. "The changes accomplish that immediate goal and put in place key structural reforms to strengthen the board's independence going forward," he added.
In the release Mr. Chazen lauded Mr. Irani's leadership at the Los Angeles-based oil and gas exploration firm.
"As the board and I have said many times, Ray has made invaluable contributions to the Company and has earned our respect and gratitude, as well as the respect and gratitude of all the stakeholders in the Company," Mr. Chazen said. "The board and I look forward to calling on Ray for advice, counsel and help in advancing the company's business interests for the benefit of our shareholders, employees, and business partners."
On February 14 Occidental announced plans to seek a successor to Mr. Chazen, a 19-year veteran of the company who took the CEO post nearly two years ago amid shareholder anger against then-CEO Mr. Irani over compensation issues. Mr. Irani, a long-time leader of the company, then became executive chairman.
The company's stock price and financial performance struggled under Mr. Chazen as an aggressive growth strategy ran into cost overruns, but the move to replace him struck many analysts and investors as unexpected.
In March The Wall Street Journal reported that the Feb. 14 announcement came shortly after Mr. Irani and directors who support him pushed a plan to dismiss Mr. Chazen and replace him with a former executive from the company, people familiar with the plan have said.
Following that report two smaller Occidental investors, First Pacific Advisors LLC and Matrix Asset Advisors Inc., said in open letters that they were troubled by the process and supported keeping Mr. Chazen.
The board said in a statement in early April that Mr. Irani was not behind the decision to replace Mr. Chazen and that it followed a deliberative process. But that explanation did not convince investor advisory firm Institutional Shareholder Services, which recommended investors not support Mr. Irani or independent director Aziz Syriani in their bids for reelection.
Mr. Syriani, as the lead director, "bears the greatest responsibility for the evident breakdown" in the succession process, ISS said in its report on April 10, and Mr. Irani, as the longtime leader of the company, should be voted out as chairman, in part so the search for future leaders "would not be encumbered by his continued presence."
Earlier this month, investor advisory firm Glass, Lewis & Co. recommended voting against just Mr. Irani, saying his continued role could complicate succession planning. Both firms recommended voting against the company's compensation plan.
On Monday, ISS spokeswoman Cheryl Gustitus said colleagues "will review our recommendations in light of Oxy's announcements."
New York City's Mr. Garland said the city's pension funds will still oppose the re-election of Mr. Irani and Mr. Syriani. "We continue to believe it's time for these two long-serving directors to go," Mr. Garland said. However, changes announced Monday "instill credibility in the board and its independence."
David Katz, chief investment officer of Matrix, said he was pleased with the announcement.
"This also means that the Board understands and would be willing to consider a number of the actions that Mr. Chazen outlined on last week's earnings call that would be aimed at enhancing shareholder value," Mr. Katz said. This includes selling off parts of the business or moving some business units into a special structure known as a master limited partnership.