Randomly Noted

The timing is quite interesting.

On the eve of new rules that will enable large institutional shareholders to more easily nominate their own candidates to U.S. public company boards of directors, two such investors are demonstrating why the pending Securities and Exchange Commission rule is not needed.

The two institutions, of course, are not setting out to disprove the need for the rule. They are simply and rightfully demonstrating the power big shareholders already have to try to change directors when they think something is amiss at a company in which they own shares.

“Entrenchment and ossification.” Those are the charges hurled at the board of Occidental Petroleum Corp. by the California State Teachers’ Retirement System (CalSTRS) and San Diego money manager Relational Investors LLC. The two own about 1% of Occidental’s shares.

Frustrated with what the investors say is too-high pay for Oxy Pete Chief Executive Dr. Ray R. Irani and the perceived lack of a succession plan for the 75-year-old CEO, the investors plan to nominate at least four directors to compete with incumbents at the company’s next annual meeting.

Switch to the SEC, where after years of debate a late August vote is expected to finally usher in an era of “proxy access,” where large holders whose shares have achieved some minimum age will be able to nominate directors whose candidacies will be carried in the proxy material companies sent to investors. In other words, some shareholders will get to nominate directors and the company will pay the freight to get the choices to shareholders.

The negatives here are the potential for the election of special interest directors representing the interests of large shareholders, including public pension funds and big unions, rather than all shareholders. It potentially turns more director contests than necessary into election campaigns.

Most of all, the Oxy Pete effort and others before this show that when they feel strongly about issues, large shareholders already have the wherewithal to try to spur change on boards and within top management. Legislating majority votes for non-contested director elections will reinforce these powers.

Back to Oxy Pete. The Wall Street Journal found Irani the third highest-paid executive in the past decade. Against that, the company’s share price is up 687% in the past 10 years, the Journal reported, compared with an oil index that rose 106% in a comparable period.

In their letter, the investors state Irani’s “target awards are now nearly twice those of the CEO at Exxon Mobil, the largest company in the world, and over three times that of Occidental’s peer group average.”

A company spokesman defended the pay practices and told The Wall Street Journal the recent elevation of the company’s chief financial officer to chief operating officer was indicative of the board’s deep involvement in succession planning.

As for CalSTRS and Relational, they say in their letter they are ”convinced that shareholders would overwhelmingly support our candidates to replace members of the current board, including its chairman and lead director.”

That certainly sounds like corporate democracy in action.

BP PLC has reached the point in the Gulf oil spill crisis in which its responsibility for the environmental disaster permits outsiders to feel entitled to comment on every aspect of the oil giant’s business.

So a public debate ensues about whether BP should continue to pay a dividend to investors when the oil is still leaking and the eventual level of BP’s liability and costs can’t yet be known.

And, as cited in an article by Suzanne Vranica in today’s Wall Street Journal, a debate ensues about whether the company should have spent a reported $50 million for image-improvement advertising on television.

On that latter point, whether you think the spending ethically justified or not, it certainly is premature.

Despite the image experts Vranica lists as being hired by BP, the final line of the article to me is the most telling.

“Until the leak is stopped, no amount of advertising or PR will help,” said Chris Gidez, U.S. director of crisis communications at Hill & Knowlton NY, as quoted by the Journal.

For BP that stop has to happen before any image repair work can be successfully undertaken.

Nothing can compete with the images of the continually spewing oil from the ocean floor and the oil-drenched birds.

The failure over the weekend by BP to plug its ruptured oil well in the Gulf of Mexico cost investors more than $20 billion today. The company’s American Depositary Shares fell $6.43 to $36.52, resulting in a company worth about $20 billion less than when the Labor Day weekend began last Friday. In part, the stock fell on the well not being contained. But also, investors are beginning to fret over the soaring clean-up costs and likely litigation costs. The company itself now has a market capitalization of around $114 billion – which has some analysts wondering if it weakens further whether it could become takeover bait.

Investors looking for an arcane  way to play the shortage in natural gas storage may have just gotten that opportunity. PAA Natural Gas Storage L.P. filed with the Securities and Exchange Commission to sell roughly $200 million of limited partnership units that would trade on the New York Stock Exchange.

The deal may be attractive to investors beyond the reasons connected with the natural gas business. There haven’t been many master limited partnership deals like this one in recent years. In fact, MLPs are pretty much limited to the energy world. The advantage of owning a partnership interest: partnerships aren’t taxed. They distribute income to partners who then pay taxes. In a traditional corporate structure, earnings are taxed before a distribution to investors is made. And then the dividend received by investors is taxed once again. So, one layer of taxation for the MLP.

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If you are looking for reasons to be optimistic about prospects for the American economy, and that search these days requires real effort, spend some time with the proponents and practitioners of clean technology.

For a layman, it’s a bit like going to the world’s fairs of yesteryear, filled with whizbang and excitable notions of how different technological advances, now at various stages of development, will dramatically alter our future daily lives.

From electric cars to the possible creation of synthetic organisms that would eat carbon dioxide to ‘clean coal,’ to wind and sun power and oilman T. Boone Pickens’ nationalist campaign to use U.S.-drilled natural gas in trucks to replace some imported crude oil, it was on display at The Wall Street Journal’s ECO:nomics conference in Santa Barbrara, Calif.

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An emerging theme at The Wall Street Journal’s ECO:nomics energy conference is that a lack of action by the U.S. government on climate change legislation creates uncertainty for utilities to embark on major, long-term investments.

Skepticism has been frequently expressed at the conference in Santa Barbara, Calif., that Congress and the administration will be able this year to pass legislation that essentially sets a price for carbon emissions.

Michael G. Morris, chairman and chief executive of American Electric Power, which he described as the largest coal burner in the U.S., supported the notion of a carbon price set by the government as it would allow businesses to “be better about your planning,” he said.

“The more uncertainty that can get sorted out, the more willing” companies will be to make big, long-term investments, said Lewis Hay III, chairman and chief executive of FPL Group.

“Some sort of price signal” about carbon is needed for investment certainty, said Tom Albanese, chief executive of Rio Tinto. He said his “preferred view” is a cap and trade system, as opposed to a carbon tax.

The number of automobiles on the planet will double by 2050 to two billion and 40% of those cars at mid-century will be electric cars.

So said Peter Voser, the chief executive of Royal Dutch Shell, at the Wall Street Journal’s ECO:nomics conference in Santa Barbara, Calif.

Along the way there will be room for all sorts of alternatives, he said.

Stock Chart For Allegheny Energy - Shares Trading Below Offer

If you believe this is a deal that will go through, there is an opportunity to make some decent money. FirstEnergy offered $4.7 billion in stock earlier today to buy Allegheny Energy. Allegheny’s stock shot up 12% while First Energy’s shares slumped. But the market isn’t so sure one of several state regulators who have to approve the deal won’t try to scuttle it. FirstEnergy is offering Allegheny holders 0.667 a share of FirstEnergy for each Allegheny share owned. Based on the closing prices, that puts the value of the deal for an Allegheny holder at $26.40 a share. But Allegheny’s shares closed at $23.55. That offer value is a full 12% premium to where the stock closed. Regulatory uncertainty has the risk arbitrageurs sitting on the sidelines – for now.

For all the controversy about high pay on Wall Street and all the statistics more broadly about the growing gap between the pay of average U.S. workers and top executives, it’s still quite unusual to see high pay for an individual apparently factor in a merger transaction.

But the case can be made that the up to $100 million payday expected by successful energy trader Andrew Hall of the Phibro unit of Citigroup is why Phibro was just sold to Occidental Petroleum.

It avoids a head-on collision between Citigroup – owned 34% by American taxpayers via their government – and the pay czar Kenneth Feinberg, who has a mandate to hep set pay at companies receiving significant government aid.

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California is continuing its trend-setter ways. You’ll recall the giant state was out front in trying to tame auto emissions, among other things. Now it’s after big-screen televisions.

Marc Lifsher reports in The Los Angeles Times the California Energy Commission is scheduled to release new proposed energy use standards today for public comment, with a final vote in November. Maxium energy use rules for televisions would start in 2011.

The article reports mixed views from the affected industry. It will be interesting to see if other states follow suit. With the booming consumer desire for ever-larger televisions, this could be an emerging energy issue.

Lifsher reports: “The average plasma screen uses more than three times as much energy as a bulky, old-fashioned cathode-ray tube TV.”