Phillips 66’s Proxy Battle: Glass Lewis Withdrawal Signals Governance Shift

The proxy battle at Phillips 66 (PSX) has escalated sharply, with influential advisory firm Glass Lewis withdrawing support for three incumbent directors in 2025—a move that underscores deepening tensions between the company’s leadership and activist investors. The decision marks a pivotal moment for the energy giant, as it faces pressure to adapt to evolving governance expectations and strategic demands.

The Catalyst: Elliott’s Activist Campaign
The withdrawal of Glass Lewis’s support stems directly from Elliott Investment Management’s aggressive push to reshape Phillips 66. Elliott, which owns nearly 5% of the company, has nominated seven director candidates advocating for the sale of the firm’s midstream business—a move they argue would unlock $10 billion in shareholder value. Phillips 66’s board has resisted this, insisting its integrated model drives superior long-term returns.

Glass Lewis’s stance appears to align with Elliott’s governance arguments. The advisory firm highlighted concerns about the current board’s lack of diversity and its perceived reluctance to adopt shareholder-friendly reforms. “The board’s failure to declassify its structure or meaningfully address diversity metrics has created a credibility gap,” said a Glass Lewis spokesperson.

Key Drivers of the Shift
1. Diversity and Representation:
Glass Lewis’s continued emphasis on boardroom diversity played a critical role. While Phillips 66 touts its nominees’ industry expertise, the firm’s public disclosures lack transparency on gender, racial, and LGBTQ+ representation. In contrast, Elliott’s slate includes candidates with backgrounds in renewable energy and ESG (environmental, social, and governance) leadership—aligning with Glass Lewis’s updated policies.

1. Governance Risks and Conflicts:
   The board’s criticism of Elliott’s nominees for “redundant skills” and ties to Elliott’s CITGO bid backfired. Glass Lewis flagged concerns about the board’s own transparency, particularly regarding its handling of conflicts of interest. For instance, the firm’s CEO, Mark Lashier, has repeatedly declined to address whether the board discussed potential asset sales—a key demand of Elliott and other shareholders.

2. Strategic Stalemate:
   Phillips 66’s insistence on maintaining its integrated model clashes with market realities. While the company has returned $13.6 billion to shareholders since 2022, its stock has underperformed peers by 15% over the past year. Elliott argues that spinning off midstream assets could boost PSX’s valuation by 20%, citing Chevron’s similar strategy as a precedent.

The Vote and Its Implications
The proxy contest’s outcome hinges on shareholder votes, but Glass Lewis’s withdrawal of support for three directors signals a significant shift. Historically, proxy advisors like Glass Lewis and ISS have held substantial influence over institutional investors. This decision could pressure Phillips 66 to concede at least one board seat to Elliott—a precedent that could embolden further activism.

Conclusion: A Crossroads for Energy Governance
Phillips 66’s governance challenges reflect broader trends in corporate accountability. With ESG criteria and diversity mandates increasingly shaping investment decisions, companies that resist change risk losing institutional support. The stakes are high: if Elliott secures board seats, it could force a reevaluation of PSX’s strategy, potentially unlocking shareholder value—or destabilizing the company’s long-term plans.

Investors should monitor two key metrics:
- Shareholder returns: PSX’s dividend yield (currently 4.2%) versus peers like Marathon Petroleum (MPC) at 5.1%.
- Governance metrics: Glass Lewis’s voting rationale and subsequent shifts in institutional holdings.

The battle also sets a precedent for energy firms. As activists like Elliott gain traction, companies must balance short-term gains with long-term sustainability—a lesson Phillips 66 may now learn the hard way.

Data sources: Phillips 66 investor reports, Glass Lewis advisory statements, and S&P Capital IQ.