A Crossroads for Phillips 66: Governance Reform or Continued Underperformance?

The battle over Phillips 66’s boardroom is now front and center as shareholders prepare to vote at the company’s 2025 Annual Meeting. Proxy advisory firm Glass Lewis has thrown its weight behind Elliott Investment Management’s push for sweeping changes, urging investors to elect three of Elliott’s nominees and de-stagger the board. This recommendation marks a pivotal moment for the refining giant, whose governance and performance have drawn increasing scrutiny. Let’s dissect the stakes and what this vote could mean for the future of Phillips 66.

The Case for Change: Governance and Performance Gaps

Glass Lewis’s support for Elliott hinges on two core issues: governance failures and chronic underperformance. The firm criticized Phillips 66’s leadership for its “increasingly dubious” transparency, citing inconsistent strategic decisions and a lack of accountability. A key point of contention is the CEO-Chairman role, which Glass Lewis calls “suboptimal,” arguing it concentrates power without checks. This structure, combined with an over-tenured board (average tenure exceeds industry norms), has created a governance “moat” resistant to shareholder input.

Financially, Phillips 66 has lagged peers for years. shows its TSR ranking in the bottom quartile of refining companies since 2021. Even more concerning, its midstream investments—once touted as growth drivers—have failed to deliver, with returns falling short of guidance by 15-20%, according to Glass Lewis.

Elliott’s Play: Expertise vs. Entrenched Interests

Elliott’s nominees—Brian Coffman (former Marathon executive), Sigmund Cornelius (ex-ConocoPhillips), and Michael Heim (Targa Resources leader)—are positioned as industry veterans who can reset the company’s strategy. Their focus on returning to core refining assets and simplifying operations aligns with Egan-Jones Proxy Services’ endorsement, which noted Phillips 66’s “strategic drift.”

Phillips 66, however, has fought back, arguing that Elliott’s nominees lack independence due to ties to Amber Energy (an Elliott affiliate) and that its proposed annual board turnover policy is legally unfeasible. The company also claims its governance structure has served shareholders well, though its stock price tells a different story. shows a 30% underperformance gap since 2020.

The Broader Implications: A Governance Litmus Test

This vote is more than a corporate skirmish—it’s a test of shareholder power in an era where governance reform is increasingly demanded. Glass Lewis’s emphasis on de-staggering the board reflects a broader trend: investors are no longer willing to tolerate complacency in leadership.

Historically, companies facing similar challenges have faced stark outcomes. For instance, after investors forced board changes at Occidental Petroleum in 2020, its TSR outperformed peers by 22% in the following two years. Conversely, firms like Boeing, which resisted governance overhauls, saw prolonged underperformance.

Conclusion: A Fork in the Road for PSX Investors

The 2025 shareholder vote is a binary moment for Phillips 66. If Elliott’s nominees win, the company could pivot toward strategic clarity and operational discipline, potentially unlocking $3-5 billion in stranded value, per Glass Lewis’s analysis. A win for the status quo, however, risks further alienating investors and cementing PSX’s position as a laggard.

Data underscores the urgency: Phillips 66’s 5-year average ROE (9.2%) trails peers by 400 basis points, while its governance score (per ISS Analytics) ranks in the 15th percentile among U.S. industrials. With over 40% of shares held by activist-friendly institutional investors, Elliott’s push has a real chance.

For investors, this vote is a referendum on whether leadership can adapt to a world demanding transparency, agility, and value. The outcome will define Phillips 66’s trajectory for years to come—and signal whether the governance revolution is here to stay.