Does Tillerson’s deal with Exxon eliminate his interest in the company?

Since President-elect Donald Trump announced his choice of Exxon CEO Rex Tillerson for Secretary of State, people have been speculating about how Tillerson and Exxon might deal with an ethics problem: Tillerson has around $180 million worth of Exxon stock that will vest over the next decade. He can’t hold on to it if he becomes Secretary of State because that would create a clear conflict of interest: He’d have a strong interest in boosting Exxon’s stock value.

Yesterday, Exxon and Tillerson struck a deal that media outlets are characterizing as severing Tillerson’s ties with the company. The basic terms are that Tillerson’s non-vested stock will be cashed out and the money placed in an irrevocable trust, with a slight discount, from which Tillerson will receive payments over 10 years. If he goes back to work in the oil and gas industry within 10 years, he forfeits the remaining money and it goes to a charity of the trustee’s choosing. In other words, Tillerson gets payments over time that aren’t linked to Exxon’s performance, and he has a strong incentive not to go back to his industry, so he won’t favor it while in office.

But maybe it’s not that simple.

We found a discrepancy in the documents Exxon filed with the U.S. Securities and Exchange Commission. The filling contains two agreements, one between Exxon and Tillerson, and one between Exxon and Northern Trust Company, which will serve as the trustee. The contract between Exxon and Tillerson says the CEO will forfeit all remaining assets in the trust if he works for the oil and gas industry in the next 10 years. But Exxon’s agreement with the trustee says that Tillerson forfeits the trust assets if he engages in “competitive” employment in the oil and gas industry – in other words, employment with any company other than Exxon.

So which is it?

The difference matters. If, under the trust agreement’s terms, Tillerson can continue to receive payments if he returns to work for Exxon during the next ten years, but not if he works for any other oil or gas company, then he retains a strong interest in Exxon. Not only would he want Exxon to perform well during his tenure as secretary of state, he’d have an incentive to advance the interests of the only company in the field where he could work – and still receive the huge trust payments – over the next ten years. That’s a far cry from eliminating his interest in the company.

Senators should ask some tough questions about this deal at Tillerson’s confirmation hearing.

 

Note: Under Exxon’s current policies, the company couldn’t re-hire Tillerson as an employee because it has a mandatory retirement age of 65. But the company presumably could hire him as a consultant or contractor.