Phillips 66 Responds to Glass Lewis and ISS Reports
Phillips 66 today issued a comprehensive response challenging the recent recommendations from Institutional Shareholder Services (ISS) and Glass Lewis & Co. (Glass Lewis). The company expressed strong disagreement with the advisory firms’ positions and underscored its commitment to maintaining transparent and productive shareholder engagement.
“We disagree with the recommendations issued by ISS and Glass Lewis,” said the Independent Directors of Phillips 66. “We remain dedicated to listening to our shareholders and addressing the central issues in this campaign.”
A central point of contention raised by Phillips 66 is that both ISS and Glass Lewis failed to meaningfully evaluate the core objective of Elliott Investment Management L.P.’s campaign—namely, the proposed breakup of Phillips 66. According to the company, Elliott’s vision to split the integrated energy company into separate entities presents material risks that neither ISS nor Glass Lewis properly assessed.
Phillips 66 emphasized that its current integrated operating model is the result of extensive and ongoing evaluation by the Board, aimed at maximizing shareholder value. While ISS explicitly stated that its recommendation should not be construed as an endorsement of a Midstream or Chemicals separation, the company warns that supporting Elliott’s nominees may lead to such an outcome. This, the Board argues, would override the informed judgment of a highly qualified leadership team.
The company also expressed deep concern about the implications of ISS and Glass Lewis’s stance on director independence. Specifically, both firms recommended against the re-election of Robert Pease, who joined the Board as a nominee supported by Elliott. The only vote Pease has taken to date was in favor of combining the roles of Chair and CEO—a governance structure present in 44% of S&P 500 companies.
Phillips 66 contends that ISS and Glass Lewis’s determination that Pease lacks independence, based on a single vote and less than a month of service, sets a troubling precedent. The company emphasized that Pease’s decision reflected his professional judgment, shaped by more than three decades in corporate leadership. Moreover, Phillips 66 highlighted the lack of scrutiny applied to Elliott’s reversal in supporting Pease and the inherent conflicts of interest in its campaign.
The reports from ISS and Glass Lewis were also criticized for their outdated reference points. While both acknowledged that Phillips 66 has significantly refreshed its Board since 2020, the firms still pointed to a pre-pandemic period of limited board turnover as justification for further changes today. The company argues that this backward-looking analysis ignores the substantial steps taken in recent years to modernize governance.
Additionally, Phillips 66 raised serious concerns about the governance risks posed by Elliott. The company highlighted Elliott’s ongoing bid to acquire CITGO, which overlapped with confidential discussions about additional board representation. The proxy advisors’ reports, however, omitted mention of this activity, as well as the lack of disclosure around the relationships among Elliott’s current nominees.
Phillips 66 reaffirmed its commitment to continued transformation and Board refreshment. The company noted that it has added five new independent directors in the last four years, reinforcing its commitment to new perspectives and stronger governance. These additions include:
- Julie Bushman (appointed July 2020)
- Lisa Davis (October 2020)
- Denise Singleton and Doug Terreson (July 2021)
- Greg Hayes (July 2022)
- Mark Lashier also joined the Board in July 2022 in connection with his appointment as CEO
Simultaneously, the company noted, several directors stepped down, including Ferguson (August 2020), and McGraw and Tschinkel (March 2021).
Phillips 66 is also advocating for the declassification of its Board, a change that would require all directors to stand for election annually. This move was previously supported by 73% of outstanding shares, and ISS has endorsed the proposal as a mechanism to increase accountability. ISS noted, “The proposed declassification, assuming it can clear the supermajority hurdle, would enhance board accountability to shareholders.”
On the operational front, Phillips 66 pointed to significant progress under the leadership of CEO Mark Lashier, who took the helm on July 1, 2022. According to ISS’s own analysis, the company has outperformed key competitor Valero (VLO) by nearly 21 percentage points in total shareholder return since Lashier’s appointment. The company has made demonstrable progress in reducing corporate costs, improving refining operations, and pursuing strategic divestitures, all aimed at enhancing shareholder value.
Phillips 66 further emphasized the relevance of its Board’s experience to the company’s strategic direction. The majority of directors bring expertise in refining, chemicals, and midstream operations. Many have led major business transformations, hold deep financial expertise, and understand supply chains at a global level. Collectively, Phillips 66’s directors and nominees have overseen more than $300 billion in major breakups or divestitures, underscoring their qualifications.
The company urged shareholders to consider Elliott’s actions in context. Phillips 66 argues that Elliott is promoting a high-risk, short-term strategy that could jeopardize long-term value creation. Shareholders are encouraged to form their own judgments, rather than being swayed by Elliott’s campaign.
In terms of voting, Phillips 66 recommends that shareholders:
- Vote FOR only the company’s four director nominees by using the WHITE proxy card
- Vote FOR management’s proposal to declassify the Board of Directors
- Vote AGAINST Elliott’s proposal that would mandate annual director resignations—a proposal Phillips 66 states is in conflict with Delaware law and would expose the Board to legal and reputational risk
The Board strongly encourages shareholders to cast their votes as soon as possible, regardless of whether they plan to attend the virtual Annual Meeting scheduled for May 21, 2025.
Phillips 66 also cautioned shareholders about materials they may receive from Elliott Management, labeled with a “Gold” proxy card or similar instructions. The company advises discarding those materials and emphasizes that shareholders can override any earlier vote submitted using Elliott’s proxy card by voting again using the WHITE proxy card issued by Phillips 66. Only the most recently submitted vote will be counted.
Ultimately, Phillips 66 stands by its record, its leadership, and its strategy, urging shareholders to support stability, experience, and a long-term vision for value creation.
