Phillips 66 Independent Board Director pens letter to shareholders regarding dispute with Elliott Investment Management

On Tuesday, March 25, Elliott filed a lawsuit against Phillips 66, seeking to have four directors stand for election at the company's annual meeting this year. The activist investor, which owns a $2.5-B stake in Phillips 66, had already nominated seven directors to the company's board earlier this year. After receiving Elliott's notice of director nominations, on February 18, Phillips announced that two sitting directors previously in the 2025 class, Gary Adams and Denise Ramos, would not stand for reelection, and that the size of the Board would be reduced from 14 to 12 directors after the Annual Meeting. As a result, there would only be two seats up for election in the 2025 class and then five in each of the 2026 and 2027 classes – which Elliott argues in the complaint is in violation of the Company's governing documents requiring director classes to be equalized.

On Wednesday, March 26, Phillips 66 said it has nominated four executives to stand for election as directors at its upcoming annual shareholders' meeting as the proxy fight with activist Elliott Investment Management intensifies.

The nominations include John E. Lowe and Robert W. Pease, who are currently serving as directors. Phillips also named Nigel Hearne and Howard I. Ungerleider in place of Gary K. Adams and Denise L. Ramos, who will retire from the board.

Today, Phillips 66 released the following letter from Independent Director Bob Pease to the Company’s shareholders:

Shareholders of Phillips 66:

I joined the Phillips 66 Board of Directors in February 2024. My appointment came as a result of an agreement between Elliott Management and Phillips 66. At the time, Elliott Management said I would bring to the Board “extensive experience in refining and energy more broadly.”

Now Elliott wants me off the Board.

Today I’m writing you, our shareholders, to lay out the truth about the Phillips 66 Board and why my own view of Elliott’s campaign for change at the Phillips 66 has evolved.

I’ll start first with why I agreed to join the Phillips 66 Board in this relatively unusual manner. I’m a refinery guy first and foremost, holding numerous leadership roles, particularly in downstream businesses. When I joined the Board, Elliott’s primary demand was for Phillips 66 to improve its performance in refining. My experience was a perfect fit. Joining the Board then with Elliott’s endorsement felt like a win-win.

I worried that joining a board with the endorsement of a well-known activist hedge fund may not be the best way to win the hearts and minds of other board members. I have been around long enough to know human nature, so I believed it would take some time to have an impact on this Board.

I was wrong. My experience, insight and voice were immediately welcomed. In fact, I was encouraged early on to look closely at refining plans and challenge management.

The level of debate, in-depth analysis and looking under every stone that I have seen so far on this Board is exactly what shareholders should want in the Board room.

The Phillips 66 Board has delivered strong operational performance in refining while constantly exploring opportunities to create value across the full portfolio. Our integrated model has delivered synergies between the businesses and less volatile cash flows – it is a competitive advantage. We have set ambitious goals and are committed to maintaining best-in-class asset integrity while delivering a secure, competitive, and growing dividend; pursuing further accretive growth; and returning over 50% of our net operating cash flow to shareholders through share repurchases and dividends.

You simply don’t achieve results like this without a high functioning, deeply engaged Board.

In my view, it was Elliott’s inconsistent engagement that has proven most peculiar. There would be long silences, followed by rapid public action. What I saw from the Board was a clear commitment to getting to the right answer but a real struggle to understand and engage with an apparently highly distracted shareholder in Elliott.

We have only been met with a declaration that there were “no next steps” and then continued public assaults, even while Elliott refused to allow us to meet their nominees. Then came their notification that Elliott would in fact be running four nominees for election at the 2025 Annual General Meeting. With my re-nomination to the Board confirmed, that meant I would be targeted for replacement by Elliott’s nominees, just a year after they publicly supported me. I do not know why Elliott now wants me off the Board.

The Phillips 66 Board is committed to shareholder value creation.

We are committed to challenging management to deliver results. We are committed to acting, when necessary, but we are not a group that makes sweeping, irreversible costly change in response to short-term market fluctuations and speculative valuations.

We will always act in the best interest of our long-term shareholders for long-term value creation.

Sincerely,

Bob Pease
Independent Director