Buck stop

3 May 2016 By Kevin Allison

The Halliburton chief executive isn’t apologizing for the overconfidence that just cost his employer $3.5 billion. That’s the break fee David Lesar’s company has to pay Baker Hughes after antitrust concerns led to the unraveling of their oil-services merger. Tuesday’s first-quarter earnings call passed with the CEO and chairman expressing disappointment, but offering little sign of contrition. Halliburton’s owners may have to speak up once again.

Nearly 30 percent of shareholders voted against the company’s executive compensation in a non-binding poll last year. Though the significant protest inspired a rewrite of the pay plan for top employees, Lesar still collected nearly $16 million for 2015, down from about $21 million the previous year. With the company’s annual meeting set for May 18, a sterner slap on pay would be one way for investors to register displeasure at the lack of judgment shown during the 18-month Baker Hughes saga.

Wall Street’s stock analysts are no help. Those who dialed into the earnings discussion didn’t bother asking about the impact of the deal’s collapse on the CEO’s pay or prospects. Lesar, meanwhile, seemed to paint the failure as some kind of natural disaster. U.S. trustbusters grew pickier about approving big mergers after the agreement was struck, he said. The grim impact of falling oil prices on the industry undermined the economics of the deal, leading the company to conclude it was better off eating the break fee – the highest cash amount on record at Thomson Reuters – and walking away.

Hindsight is 20/20, but executives and boards are paid to anticipate such problems. Oil prices were already falling when the deal was made in November 2014. And placing such a big bet on regulatory clearance for a merger of the No. 2 and No. 3 players in a concentrated industry suggests the Halliburton boss may have listened too narrowly to advisers incentivized to tell him what he wanted to hear.

Lesar’s rewards should tumble dramatically for 2016, assuming the board decides he’s still the best person to have in the corner office after 16 years. To ensure directors don’t go soft, though, investors may need to express themselves loud and clear. At least they have the year’s only opportunity to do so coming up in just two weeks.


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