Phillips 66 CEO Mark Lashier responds to Elliott criticisms
In an interview with the HBJ and a podcast episode released by Elliott, leaders of the two companies share their contrasting perspectives about the direction of Phillips 66.
Story Highlights Phillips 66 CEO Mark Lashier and Elliott leader John Pike share opposing views on their proxy battle.
Four directors will be elected at Phillips 66's annual shareholder meeting on May 21.
The decisions any elected directors might make are still up in the air.
Houston-based Phillips 66 (NYSE: PSX) CEO Mark Lashier is standing firm behind the company's midstream business, his role as CEO and chairman, and Phillips 66's progress over the past few years — all things activist investor Elliott Investment Management LP has criticized.
With Phillips 66's annual shareholder meeting coming up in about a month, investors are preparing to vote either for the company's nominated slate of directors or for those nominated by Elliott, who has demanded Phillips 66 sell or spin off its midstream business and sell its 50% stake in Chevron Phillips Chemical Co.
Most recently, Elliott released a third-party survey — without disclosing who conducted the survey — touting the support the investor is receiving from shareholders who Elliott said believe Phillips 66 is 'coasting along' and isn't measuring up to its competitors.
'We've not only delivered our commitments, we far exceeded the initial commitments that we made,' Lashier countered in an interview with the Houston Business Journal.
Lashier highlighted the amount the company has returned to shareholders, cost savings and synergies after its acquisition of DCP Midstream LP by the end of 2024, which he said were all higher than the targets announced in 2022.
'We've taken some pretty decisive, pretty dramatic action in two and a half years, and I've had board members tell me that they're just stunned at the progress that we've been able to make in such a short period of time,' Lashier said.
Meanwhile, in a podcast released on April 17, John Pike, the partner at Elliott leading the Phillips 66 investment, reasserted that the company is underperforming in similar ways to companies Elliott has engaged with in the past.
'All of these companies had underperformed very significantly over long periods of time. And that underperformance manifests itself in poor operations — but also in poorly performing stocks,' Pike said.
'What is also a common thread is you generally have poor capital allocation and management that is often not being held accountable by boards of directors. In Phillips 66, we certainly see all those elements.'
Pike was included in Elliott's initial slate of seven people the investor was considering nominating to the board of directors, but he was not included in the final list of four nominees. Shareholders will elect four directors at Phillips 66's annual shareholder meeting on May 21.
A trend of CEO removals
While Elliott has not explicitly called for Lashier's removal, the firm has made repeated comments about the company's poor management, as well as Lashier's position as both CEO and chairman of the board.
Elliott said when it supported the appointment of director Bob Pease to Phillips 66's board last year, it specifically liked that he believed having a CEO also serve as chair of the board was detrimental to a company in need of change. Soon after that, Lashier became chairman of the board of directors in addition to his role as CEO.
Many companies have lost their CEOs during engagements with Elliott — but Elliott often directly called for those CEOs' removal, and those engagements did not turn into proxy battles. The CEO of Houston-based NRG Energy Inc. (NYSE: NRG) abruptly left the company in 2023 after Elliott called for him to step down, and the CEO of Houston-based Crown Castle Inc. (NYSE: CCI) retired in early 2024 after Elliott called for new executive leadership.
The outcomes of a proxy battle, however, can be uncertain because the decisions new directors might or might not make in the future cannot be guaranteed.
'I can't speculate on what they may want to change; I do know that they've got an activist playbook, and that is typically part of their activist playbook,' Lashier said when asked if he believed Elliott would come for his job next.
'I think Phillips 66 stands behind me," Lashier said. "The board stands behind me. We are all aligned on our strategy. We wouldn't be pursuing a strategy if the board wasn't aligned on it.'
What about a midstream spinoff?
Since February, Elliott has called for Phillips 66 to consider options to sell or spin off its midstream business, which the company has been working to build out since acquiring DCP Midstream for $3.8 billion in 2023.
In an interview with the Houston Business Journal last year, Don Baldridge, executive vice president of midstream and chemicals, said the transportation of natural gas liquids was a great opportunity for Phillips 66 as it strived to become a fully integrated downstream company.
Lashier said of Phillips 66's integrated operations: 'They have physical integration, they have molecular integration, and they provide tremendous financial resiliency. The midstream business provides very steady earnings; the marketing business provides very steady earnings, while we've got refining and chemicals that are a bit more volatile but can throw off tremendous cash flow.
'We've looked at that ourselves and came to the conclusion, with the support of well-known investment bankers, that it doesn't make sense to spin off our deeply integrated NGL midstream business — that we would risk destroying value rather than create value.'
In the podcast, Pike called out this line of thinking, saying investors can choose to diversify their own assets without Phillips 66 doing it for them.
'I think Mark Lashier and this board is, to a certain extent, hiding behind their own inability to run the refining assets. In other words, if the refining assets were run as they're run today, then yeah, it would trade in a very volatile way. Our plan is to eventually have these assets separated but also to have them run well and efficiently,' Pike said.
How can the board declassify?
Lastly, the two companies disagree on how to move forward with declassifying the board, which would put every director up for reelection ever year. While Phillips 66 has filed a proposal to amend the company's charter, a move the company has tried five times in the past nine years and requires approval by 80% of the company's shares, Elliott has proposed a change to the company's governance policy. The proposed policy would require each incumbent director to commit to a one-year term at each meeting, making all board seats open annually.
'This is something they can do. We've run it down with our lawyers, Delaware lawyers. This is something that they can do. They would have to do it on a voluntary basis,' Geoff Sorbello, Elliott's managing director of engagement, said in the podcast with Pike.
However, Lashier doesn't think the policy will hold up in court.
'What Elliot has proposed is a mechanism that actually, in our view, circumvents Delaware law. So we don't think what they've proposed would pass legal muster in Delaware, and that's why we don't think it's a legitimate way to essentially declassify the board. It would be in violation of our founding documents, our bylaws,' Lashier said.
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