Gulf of Mexico independent Energy XXI Ltd. has stripped John Schiller of his title as chairman following an internal investigation that found he had borrowed from vendors and obtained a personal loan from an acquaintance who later was appointed to the board.
James LaChance, who has served on the board since December, assumed the chairmanship on Thursday, a Securities and Exchange Commission Form 8-K filing said. Schiller is to continue as president and CEO, but his employment agreement was amended.
Following a special meeting held Oct. 9, the board determined that the CEO/chairman roles would be split between two people to enhance communication and ensure compliance with company policies and procedures. The Houston-based operator disclosed last month in its annual report for fiscal 2015 that Schiller had borrowed funds "from personal acquaintances or their affiliates, certain of whom provided the company with services...Norman Louie, one of the company's directors, made a personal loan to Mr. Schiller before Mr. Louie became a director of the company." Schiller also has been criticized by shareholders for directing large amounts of company money to a hunting camp in South Texas to entertain clients.
Schiller did not disclose the personal loans before they were made nor comply with the procedural requirements of the company's Code of Business Conduct and Ethics, the board said. Once it learned of the personal loans from "affiliates of service providers," independent legal counsel conducted an internal investigation, with the assistance of outside forensic accountants, to review Schiller's loans and the company's vendor procurement processes.
The internal investigation "has not uncovered any illegal activity or any impact on the company's financial reporting or financial statements," the board said.
However, the board is "designing and implementing additional controls and procedures, including, but not limited to, strengthening the company's vendor procurement procedures to address any potential conflicts of interest that could arise from Mr. Schiller's personal loans; revising the Code of Business Conduct and Ethics to explicitly ban any such personal loans in the future; and implementing an enhanced comprehensive training program" about business conduct and ethics.
At the board meeting earlier this month, several actions were approved to strengthen policies related to business conduct; pledging/hedging shares by officers/directors; and vendor procurement.
"These changes to the company's policies and procedures were the result of a review of best practices and comparable policies among the company's peer group, as well as larger exploration and production companies outside of the company's peer group," the board said. Periodic reassessment and policy improvements "are important to good governance and part of the ongoing responsibilities of the board," and it directed outside independent counsel to prepare and submit formal policies that among other things would:
Prohibit personal loans from company's vendors, other than ordinary course loans from financial institutions;
Address best practices for charitable organizations in which an officer or director is involved;
Address best practices for the proper level of entertainment activities, and
Clarify the precise procedures for reporting potential conflicts of interest and requesting waivers.
Directors and officers also are prohibited from pledging shares for hedging transactions and short sales. The company is creating a formal chief compliance officer position to implement the policies and conduct training.
In addition, Louie, who joined the board last year and whose term expires at the next annual meeting, was not nominated for reelection; he also does not serve on any board committees. "There were no disagreements between Mr. Louie and the company known to the company," the board said.