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Setting the benchmark in corporate integrity

Gulf Keystone Petroleum clash with top investor over structure demands

City investor M&G has ruffled feathers at Gulf Keystone after telling the oil company it needs to appoint non-executive directors to its board

M&G argues that responsible corporate governance has started to slip at Gulf Keystone, and that the decisions being made by directors is growing increasingly unrepresentative of the interests of company shareholders.

“M&G is not seeking representation on the board of GKP, nor has it any wish to interfere with its operations. But we do want the election of truly independent non-executive directors who will represent the interests of all shareholders,” M&G said in a statement. “We are not asking for any special relationship with the four candidates: our aim is purely to strengthen corporate governance at GKP.”

Consequently, the fund manager has recommended that shareholders appoint four non-executives onto the Gulf Keystone board in a bid to further democratise the oil company’s decision-making paradigm. M&G suggested four candidates in particular to step in as independent non-executives; however, Gulf Keystone slammed the suggestions as needlessly overstepping boundaries.

Representatives of the board were quickly on the defensive. They asserted that M&G’s proposal was completely “disingenuous”, and that the investor’s suggested candidates completely lack “the senior level public company experience … to contribute to the board of one of the largest companies on Aim.”

The oil giant took things a step further by declaring that its board “unanimously recommends shareholders to vote against all of the proposed M&G candidates” at the annual investors meeting next week. Yet it appears more likely that shareholders will rebel against the board’s wishes in favour of raising the company’s corporate governance standards.

M&G, which owns a five percent stake in the company, is one of many investors that have grown increasingly wary of Gulf Keystone’s corporate interests. The company’s CEO, Todd Kozel, has been heavily scrutinised for accepting a pay package of $22.7m whilst his company operates at a pre-tax loss of $80m. Worse yet, it seems dirty laundry helps to govern the company, too. Kozel’s ex-wife is reportedly keen to use her estimated 17m shares next week to vote against the company at next week’s AGM. That said, even a vote made out of spite will undeniably benefit Gulf Keystone’s overall growth by democratising its board of directors.

While the oil giant continues to stumble into growth, M&G has made clear that share prices in the company would stagnate unless there was a “significant strengthening” on the board. As directors and shareholders alike contemplate moving the company from the junior AIM onto the main market, the results of next week’s AGM may weigh heavily on the Gulf Keystone’s long-term future.

 

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