El Paso CEO Defends Board Actions 'to Set the Record Straight'
El Paso Corp. CEO Doug Foshee, addressing concerns highlighted at last month's annual meeting, admitted Thursday in a lengthy letter to shareholders that the financial restatements by the company this year are unacceptable. But Foshee said he would "not offer the cold comfort of an excuse." Instead, he highlighted improvements over the past year, and said the board "wanted to provide the best assurance we can that this situation will not occur again, and to ensure that El Paso will continue on its road to recovery."
The statement appeared to be a review of the annual shareholder meeting Nov. 18. Foshee noted that "recent press reports regarding the views of the AFL-CIO and the proxy recommendations of two proxy services raised a number of additional issues that I would like to address in an attempt to set the record straight."
Before November's annual meeting, two proxy advisory firms recommended that shareholders fire the El Paso's auditor, replace the CFO and withhold votes against some of the directors (see NGI, Nov. 15). None of the proxy recommendations were approved. The AFL-CIO, another major shareholder, also sent an open letter to El Paso management, criticizing the company for not going far enough to assign blame for the $1.9 billion loss in 2003, nor the write-downs that led to the losses.
"One of the proxy services recommended that shareholders withhold votes from directors because they did not remove our current chief financial officer from his position as a result of the restatements," said Foshee. "Frankly this suggestion is absurd. Mr. [Dwight] Scott took the reins as chief financial officer in late 2002 during the most difficult times in this company's 75-plus year history. He has performed his job tirelessly and admirably, as anyone who did more than a cursory read of our public materials before attempting to pass judgment would know. Mr. Scott had and continues to have the confidence and support of the board, of his peers, of the investment community, and of me."
While he said that he understood and respected the "views of the past that were articulated by the AFL-CIO and the two proxy services," Foshee said he wanted to set the record straight about what is happening within the company to ensure past problems don't reoccur.
"This board and management team did not hide from the facts in 2003 and 2004 as we dealt with some very difficult issues. Instead, led by the board and the Audit Committee, we actively investigated the issues around the reserve revision and the hedge accounting restatement," he said. "We also communicated to you as the process unfolded in a timely and straightforward way."
Foshee also praised El Paso's current executive management team, and said, "I am happy to say that we are coming together as a team, and I am more than happy to go into battle with this skilled and highly motivated group. We are lucky to have them."
He stood behind El Paso's decision to retain PricewaterhouseCoopers as the independent auditor, and said, "I have not engaged PricewaterhouseCoopers as primary auditor in my career prior to joining El Paso, and you can be assured that I would recommend a change to our Audit Committee if I felt it was in the best interests of our shareholders."
Regarding his salary, Foshee said, recent reports "mischaracterized my 2003 annual compensation by including one-time compensation related to my recruitment as recurring compensation. It also mischaracterizes our total compensation by including one-time severance payments made to former executives as recurring compensation. It also fails to point out that I, along with our chief financial officer, voluntarily took 30% reductions in salary for 2004 to show leadership to our employees during a time when we were asking them to sacrifice greatly.
"When these facts are known, one can see that our compensation program in 2003 was very competitive for our industry, and it will continue to be competitive in 2004."