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Old whine

9 April 2013 By Christopher Swann

A feud at Occidental Petroleum reveals the folly of keeping an ex-boss on the board. Reports suggest the oil company’s chairman and former chief executive, Ray Irani, is pushing to oust current CEO Stephen Chazen. Tension between the two was predictable. As corporate and political leaders have repeatedly shown, no good can come from letting predecessors hang around.

Former Russian President Dmitry Medvedev, for instance, can attest that running the show is difficult under an ex-boss’s prying eyes. Like Vladimir Putin, Occidental’s Irani may have never intended to relinquish power. The septuagenarian tycoon handed the reins to Chazen, his chief operating officer, in 2010 after suffering harsh criticism of his nearly $900 million in compensation over the preceding decade.

It’s understandable that shareholders and the board would have wanted Irani to stick around. Occidental’s stock price rose about six-fold over his last 10 years as CEO. Exxon Mobil shares merely doubled during that period.

Yet Chazen was left with a grand title and not much power. As chairman, for instance, Irani was paid almost twice as much – a whopping $45 million in 2012. And his continuing influence makes it tougher to blame Chazen for the approximately 30 percent fall in the company’s share price since mid-2011. Exxon Mobil stock, by comparison, rose 1 percent in that time.

Similar arrangements have failed at other companies, too. Former Avon CEO Andrea Jung, for instance, was finally forced in October to step aside as executive chair of the beauty products company so her successor could operate without interference. Best Buy has also suffered from indecision over exactly who is in charge.

Chazen’s brief stint at the top will end as soon as the Occidental board can find a replacement. His departure seems premature. A major shareholder, First Pacific Advisors, has said Chazen still commands the confidence of shareholders.

A better approach might be to keep the CEO and revamp the board, which clearly botched the succession process. Occidental serves as yet another warning that every former chief executive has an expiration date.


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