Elliott Urges Shareholders to Back Board Overhaul at Phillips 66 (PSX), Citing Governance Failures and Need for Independent Oversight

Summary

Dear Fellow Phillips 66 Shareholder:

Elliott Investment Management L.P. (along with its affiliates, “Elliott”) manages funds that together are a top-five shareholder in Phillips 66 (NYSE: PSX) (the “Company”). We are asking for your help to make Phillips 66 a stronger, more valuable company by voting on the Gold Card for our four independent, exceptionally qualified director nominees and the governance improvements we have recommended.

We did not make the decision to take our case directly to our fellow shareholders lightly, but were compelled to do so after our attempts to constructively engage with Phillips 66’s leadership beginning in late 2023 were repeatedly rebuffed. Over the last 15 years, we have collaborated with more than 200 companies to reach mutually beneficial solutions that enhance shareholder value. During this period, we have only had to pursue a U.S. proxy contest to this stage of the process three other times, making Phillips 66 an extreme outlier.

Tellingly, Phillips 66 has repeatedly mischaracterized our efforts to work with its Board, going so far as to claim that we have “no genuine interest” in engagement. On April 24, Phillips 66 even published a highly misleading “Letter to Investors and Their Stewardship Teams,” accusing Elliott of a lack of transparency and framing this accusation as a series of questions that we have supposedly refused to answer.1

In reality, the voluminous set of materials and disclosures that Elliott has published over the course of this campaign contain all of the answers to Phillips 66’s misleading “questions,” but we thought it might be useful to consolidate the answers in one place for investors – which we have done in an appendix to this letter. The facts – and our track record – put the lie to the Company’s false narrative.

We believe the breakdown that led us to this impasse is the result of a deep-seated culture of complacency and blind deference to leadership that has taken root in the Company’s boardroom – and only worsened since the Board made CEO Mark Lashier its Chairman in March of 2024. This proxy contest offers a window into how this Board operates: Instead of welcoming new ideas, it rejects them; instead of empowering independent directors, it allows the CEO and Chairman to control the process; instead of being responsive to shareholders, it ignores them; and instead of embracing the support of respected experts, it acts as if it already has all the answers.

In our experience, how a board treats a major shareholder seeking constructive change is a direct reflection of the overall health of a company and its ability to deliver for its investors, employees and partners. What we’re seeing in this proxy contest is not a one-off, but rather a reflection of how Phillips 66’s current Board responds when confronted with a challenge. The Company’s intransigence at every turn is an illustration of its broken governance culture. In our view, the Company’s lackluster performance will not improve until truly objective, independent directors – bringing perspectives that can help rectify this culture of insularity and deference – are added to the Board.

We ask you to consider the following:

· For months, our requests to meet with Phillips 66’s independent directors were repeatedly rejected or ignored. Despite the Company’s public assertions that it remains willing to engage constructively, we were consistently denied the chance to speak with any Phillips 66 directors other than Mr. Lashier. After renewing our calls for change at Phillips 66 last February, the Company insisted that we deal only with Mr. Lashier, his management team and his paid advisors. Specifically, our request that independent directors be included in our March 3 meeting with management was denied, and a private letter we sent subsequently offering to meet with the Company’s independent directors was ignored.

· The Board has been party to broken promises and an insincere self-refreshment process. After initially agreeing last year to work with Elliott to add two new independent directors to its Board, Phillips 66 dragged its feet for months before reneging on that commitment. This was despite our checking in nearly every other week and providing management with the names of 10 strong independent candidates, including five former CEOs of prominent energy companies. Phillips 66 refused to meaningfully engage: Instead, it offered up a single flawed candidate while failing to share the names of its other candidates as promised. Ultimately, Phillips 66 rejected all but one of our nominees, Robert Pease, while failing to make progress toward adding a second mutually agreed director. It soon became painfully clear that the Company had no intention of fulfilling its commitment, leaving us no choice but to go directly to shareholders.

1 Phillips66Delivers.com: “Independent Directors of Phillips 66 Issue Letter to Investors and Their Stewardship Teams”

When the Company later refused our repeated requests to disclose how many seats would be up for election at the 2025 Annual Meeting in May (after the Company shrank the class of directors up for election by two), we were forced to bring litigation in the Court of Chancery of the State of Delaware to compel Phillips 66 just to release basic information. Only after this legal pressure did the Company abruptly and unilaterally nominate two new directors for election at the upcoming Annual Meeting, Nigel Hearne and Howard Ungerleider, without any efforts at further collaboration.

The irony is that the Board is now taking credit for how much it “values refreshment” and how it is composed of a group of “change agents.” The reality is that none of these reactive changes – the addition of a new director last year, the nominations of Messrs. Hearne and Ungerleider, or the departure of long-tenured directors – would have occurred without pressure from Elliott. For more than a year, Mr. Lashier and the current directors have prioritized entrenching themselves over all else – even if it meant misleading and ignoring shareholders in the process.

· Mr. Lashier’s consolidation of power has harmed Phillips 66. Since Mr. Lashier’s assumption of the combined CEO and Chairman roles, there have been increasingly troubling signs of his undue influence in the boardroom. Before joining the Board, Mr. Pease, the first of what was intended to be two mutually agreed independent director additions, shared with us his very clear view that having a CEO also serve as Board Chair was detrimental to a company in need of change. Then, only a month after joining the Board, he reversed his view and apparently voted for Mr. Lashier to take on both roles.

More recently, when we asked Mr. Pease to speak to us in his role as an independent director, his response was essentially “talk to Mark.” Further, once Mr. Lashier became Chairman, progress toward naming a second director slowed and then halted altogether, revealing the Company’s lack of good faith in finding a mutually acceptable candidate.

The Board also seems to have refused to put any guardrails around Mr. Lashier’s public commentary, which has overwhelmingly tended to favor the interests of Mr. Lashier rather than the broader interests of the Company and its shareholders. Shortly after becoming Chairman, Mr. Lashier told Reuters that “Elliott sees the progress” he and his team had purportedly been making on their targets – which was false, and which forced us to ask Mr. Lashier not to speak on our behalf.2 Throughout 2024, Mr. Lashier continued to claim that acceptable progress was being made toward hitting the targets, when in reality the Company was falling well short of its promised ~$14 billion 2025 mid-cycle EBITDA target, primarily due to weak operating performance in refining. And following the publication of our materials in February 2025, Mr. Lashier began vehemently defending the Company’s existing conglomerate structure – well before the Board could have possibly conducted an independent analysis or consulted other shareholders for their views. In April, he even doubled down in a media interview by saying “We can be bigger.”3

This type of focus on “empire building” – rather than maximizing returns – may be good for Mr. Lashier, but it is dramatically out of sync with what shareholders demand.

2 Reuters: “Activist Elliott has accepted Phillips 66's performance goals, CEO Lashier says”

3 Bloomberg News: “Phillips 66 Hits Back at Elliott Activism in Proxy Filing”

· Phillips 66’s commitment to de-staggering the Board rings hollow. Phillips 66 maintains a classified board structure, which insulates directors from accountability to shareholders and is sorely out of step with corporate governance best practice. While claiming to support an elimination of this structure, the Company knows that proposals to address this governance defect – which have consistently received near-unanimous support (~99% in 2023) among those shareholders who have voted – require an 80% threshold of all outstanding shares, not just voted shares, to pass. This high hurdle is a legacy of the governance provisions Phillips 66 put in place when it established the classified board structure – yet another example of the Company’s poor governance.

To overcome the 80% quorum obstacle, Elliott put forward a non-binding proposal calling for the Board to adopt an annual election policy asking each director to commit to a one-year term and stand for election at each Annual Meeting. Incredibly, Phillips 66’s leaders have come out against this proposal, going so far as to falsely call it illegal – despite, by definition, it being impossible for a voluntary policy to be illegal. Instead, the Company is asking shareholders to keep trying the same approach to de-staggering the Board that has repeatedly failed before and “hope for the best.”

Multiple governance experts, including respected professors from Yale University and Dartmouth College, have criticized the Company’s actions and dubious justifications for its opposition to our proposal.

As Professor Mark DesJardine from Dartmouth stated:

“This pattern suggests that Phillips 66’s Board is using these repeated proposals as a distraction tactic while failing to deliver tangible governance reform that shareholders seem to support. If the desire to declassify is genuine, one would think the Board would accept the remedy that Elliott has proposed.”4

And Yale Professor Jonathan Macey wrote:

“The problem with [Phillips 66’s] argument is that it ignores the simple fact that directors are free to resign their board positions at any time, and nothing in the Phillips 66 charter or bylaws possibly can be construed as preventing directors from voluntarily offering to resign.” 5

Shareholders should be asking whether a board truly interested in good governance would spend more time attacking practical ideas to achieving de-staggering than actually finding solutions to achieve this goal.

· Phillips 66’s attacks on the reputation of energy-industry veteran Gregory Goff confirm that the Company has lost its way. On April 9, respected industry veteran Gregory Goff, who spent decades at ConocoPhillips and led a highly successful turnaround while CEO of Andeavor, announced he had personally made a $10 million investment in Phillips 66 and was supporting Elliott’s value-creation plan.

Rather than welcome the involvement and expertise of one of the pre-eminent energy executives of our time – and a large shareholder – Phillips 66 greeted the news of Mr. Goff’s investment in its stock and his support for our campaign by immediately impugning his motives and questioning his integrity. The Company then escalated these attacks on Mr. Goff, publicly claiming a conflict of interest where none exists and spreading rumors that he must be receiving compensation from Elliott, which is false. In fact, Elliott has been completely transparent about the relationship with Mr. Goff: We have never paid him a cent of compensation.

4 CLS Blue Sky Blog: “A New Path to Declassifying Boards: How Shareholders Can Circumvent Charter Roadblocks”

5 Harvard Law School Forum on Corporate Governance: “Staggered Board Shenanigans at Phillips 66”

Our shared evaluation of the CITGO refining assets via Amber Energy has given us a front-row seat to witness Mr. Goff’s strategic skill and knowledge. Phillips 66’s assertion that our pursuit of those assets (assets for which our bid was not accepted) presents a conflict of interest is blatantly absurd. Tellingly, we have heard directly from Phillips 66 shareholders that they see through the Company’s self-serving claims and view Mr. Goff as an asset who could help Phillips 66 if only it were willing to accept his help – as any company in the sector would when presented with the option of leveraging Mr. Goff’s unique skills and experience.

It appears that the real reason Phillips 66 denigrated Mr. Goff has nothing to do with his independence from Elliott, and everything to do with his independence from Mr. Lashier and the current Board. This episode is emblematic of the need for change in the Phillips 66 boardroom – instead of welcoming or at least seriously considering input from a proven value-creator like Mr. Goff, the Board’s first response was to reflexively dismiss his views and lash out at him.

· Phillips 66’s assertions about our director nominees’ lack of experience or independence ring hollow. Elliott’s four independent nominees – Brian Coffman, Sigmund Cornelius, Michael Heim and Stacy Nieuwoudt – would restore badly needed credibility to the Company’s Board, while adding valuable new perspectives. Mr. Coffman brings years of executive refining experience from serving as CEO of Motiva and having run some of Phillips 66’s assets while at ConocoPhillips. Mr. Cornelius offers strategic planning expertise as well as decades of operating and finance experience, having served as ConocoPhillips’ CFO. Mr. Heim brings proven midstream operating experience as one of Targa Resources’ founders and COO. And Ms. Nieuwoudt would add a crucial energy-investor perspective missing from the current Board.

Fixing Phillips 66’s broken corporate governance and culture of hostility toward shareholders who advocate for needed changes is a critical element of setting it on a path to a dramatically higher stock price. Only a properly functioning and accountable Board can drive the kind of sustainable value that investors deserve. By voting on the enclosed Gold Card for Elliott’s four independent nominees – Brian Coffman, Sigmund Cornelius, Michael Heim and Stacy Nieuwoudt – you can be part of helping deliver this change.

Thank you for your time and consideration.

Respectfully,

Elliott Investment Management

Source:

https://www.sec.gov/Archives/edgar/data/1534701/000092189525001262/dfan14a10168303_05022025.htm