Transocean’s quiet risk panel & push for immunity

April 6, 2011

Coast Guard and Agencies Response to Deepwater Horizon Oil Spill

Could it be that, in the outrage over the safety bonuses awarded to top executives at Transocean (RIG), two other striking parts of the company’s proxy go largely overlooked?

Transocean, of course, is the offshore drilling contractor that owned the Deepwater Horizon drilling rig that burst into flame a year ago, killing 11 and triggering a massive oil spill and environmental disaster. Yet, as has now been widely reported, the company patted itself on the back for “an exemplary statistical safety record” and “the best year in safety performance in our Company’s history” — and promptly awarded top executives most of the portion of their bonuses tied to safety. Now the company has apologized and executives are vowing to donate that portion of their incentive compensation to charity.

The bonus incident speaks volumes about Transocean and the tone set at the top of the company. But so do two other details in the filings. First, the company’s board created a Health Safety and Environment Committee in August last year, some four months after the spill. Guess how often it met during the four months between then and the end of the year? Once.

Agenda Item 2 in the proxy is even more eye-opening. To hear the company tell it, the provision is an attempt to “discharge the members of the Board of Directors and our executive management from liability for their activities during fiscal year 2010,” explicitly including the rig explosion and oil spill. It would, Transocean says, not only prevent many shareholders from suing directors and officers entirely — whether by taking part in existing lawsuits or future ones — it would give other shareholders a narrow window of just six months to sue.

Those who vote for the measure give up their right to sue altogether, Transocean says. Those who vote against the measure, assuming they fail to stop it, will have just six months to sue, the company says:

“After the expiration of this six-month period, such shareholders will generally no longer have the right to bring, as a plaintiff, claims in shareholder derivative suits against our directors and executive management.”

Derivative lawsuits, of course, seek to hold directors and officers accountable for damage to a company, with plaintiff shareholders acting on behalf of the company and other shareholders as a group. Transocean’s proxy provision applies to “facts that have been disclosed to shareholders (including through any publicly available information, whether or not included in our filings with the SEC)” — which could be read to encompass even the voluminous materials filed in court or with public inquiry panels.

Giving directors and officers a pass is apparently one of the inalienable rights of Swiss shareholders; we find it in other companies’ proxies as well. But it’s worth noting that — at least according to this 2008 report on European discharge proposals, from corporate governance and proxy-voting firm Manifest

“a discharge of liabilities rightfully granted by shareholders in Switzerland can hinder claims against directors notwithstanding the fact that such claims are based on willful misconduct, fraud or any criminal offenses…”

That also contrasts with other European countries offering directors a discharge of liabilities, Manifest notes. In other words, it appears Transocean is going for as close to blanket protection against shareholder litigation as it possibly can.

We’re not international securities lawyers, so it may be an open question as to how well this kind of protection would hold up in U.S. courts. Still, however routine such proposals might be in Switzerland, it’s an audacious move by a company facing the kind of litigation that Transocean is.

Image source: USCG Press via Flickr

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