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2
Part ICORPORATE GOVERNANCE ANALYSIS
The purpose of this section is to understand the relationship between managers and stockholders.
A. Managers and Stockholders
Due to the prevalent problems associated with agency issues, when analyzing a companyit is important to understand the relationship between managers and stockholders. Informationon the Chief Executive Officer and the Board of Directors allows us to discern that theincumbent managers of our oil companies are more focussed on the pursuit of self-interests thanon maximizing shareholder value.
Chief Executive Officers
:
AmocoChevronMobilExxonTexacoIndustryAverage
Name
LaurenceFullerKennethT. DerrLucio A.NotoLee R.RaymondPeter I.Bijur
Age
5860595855
Years at the Company
3638363431
29
Years as CEO
69441
Studies
BSCE’61CornellBSME’59,MBA ’60CornellMBA ’62CornellPh.D. ‘63U of MinnesotaMBA’66Columbia-----
CEO Compensation
Salary rank out of 48CEOs in Oil Industry17910112Salary rank out of 800CEOs26019521057215Salary (thou)$969$1,154$850$1,550$639$641Bonus (thou)$917$1,200$650$1,250$939$655Other (thou)$121$1,533$1,275$638$43$338Stock Gains (thou)$956-----$884$5,853$1,969Total Compensation(thou)$2,963$3,887$3,659$9,291$3,590$2,383Stock Ownership (%of Total)0.020.020.020.060.030.08Market Value (mil)$6.8$8.5$9.5$12.1$6.9$5.9
3
It is interesting to note that overall the CEOs have a long history with their respectivecompanies averaging 29 years as employees and 4 years as CEOs. While it is likely that theiryears of inside experience amassed them sharp understandings of their companies it is difficult togage their efforts in maximizing firm value. The power of the CEOs is certainly manifested bytheir large compensation packages averaging $4.678 mln in 1997 (which is twice the industryaverage of $2.383 mln). In fact, according to
Forbes
these CEOs rank in the top third of theirindustry (based on compensation) with Exxon, Chevron and Mobil ranking in the top 10. Afurther study comparing the compensations of 800 top executives again places them in the topthird. Their power, however, does not emanate from their stockholdings that average only0.03%. This separation of management and ownership detracts from the power stockholdershave over the CEO and suggests little incentive for the CEOs to focus on increasing shareholdervalue.
Boards of Directors:AmocoChevronMobilExxonTexaco
Number of Members1512151217Insiders22422CEO of other Companies?69556Related Companies?NoYesYesNoNoA review of the Boards of Directors provides only minimal clear and compellingevidence that managerial interests dominate. First, none of these companies are listed onCalper’s 1997 or 1998 watch lists. Second, we are not aware of any actions by managementwhere stockholder’s interests were clearly violated such as greenmail, large increases incompensation while stock price was dropping, or the acceptance of low prices/rejection of highprices in takeover battles. Third, surprisingly, the Boards of Directors have very few insidersand are therefore less likely under the influence of the CEOs. For most boards, however, abouthalf the members are CEOs at other organizations. Therefore, it is likely that their loyalties asboard members of the oil companies will really depend on whether or not the oil company’sCEO sits on the board of the company they manage. Because they sit on each other’s boards,they are not truly independent monitors and cannot be fully protecting shareholders’ interests. Inaddition these CEOs most probably will not have the time, information and interest in beinginvolved with internal issues.
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