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ConocoPhillips Co. (NYSE:COP) deserves credit for electing the environmental expert Jody Freeman as a new outside director, but its board has shrunk from 14 members to ten. The U.S. oil and gas giant's investors remain exposed to the risk of experiencing losses related to regulation.

Warning signs about the company's trustworthiness continue. For example, Utah's state assistant attorney general Paul McConkie filed a lawsuit alleging that ConocoPhillips used false insurance claims to take $25 million from the state between 1995 and 2009, the Deseret News reported Wednesday. The company is also in a battle over a new tax assessment by the government of East Timor, which alleged that ConocoPhillips and about a dozen other companies involved in gas production have been "aggressive" in the use of deductions to lower their tax payments, Bloomberg reported Wednesday. The company hasn't always done right by the environment, either; in April GMI noted that ConocoPhillips and its partner China National Offshore Oil Corporation Ltd. agreed to pay $267 million for spilling oil into China's Bohai Bay.

Nonetheless the company said in a May regulatory filing that it had reduced its 14 member board to 9 people, with Kenneth M. Duberstein, Ruth Harkin, Kathryn C. Turner, Harold W. McGraw III and Victoria J. Tschinkel retiring; the latter two were elected to join the seven person board of ConocoPhillips' new refining business spinoff Phillips 66. Also, Ryan M. Lance replaced James J. Mulva, who retired from his role as chairman, president and CEO of ConocoPhillips. In its press release on July 10, ConocoPhillips said only that its addition of Freeman would increase the board's size to ten people.

Freeman adds good expertise to the company's supervision. She's the founding director of the Harvard Law School Environmental Law and Policy Program and has strived in her research to clarify regulatory issues on matters such as climate change. A White House counselor in 2009 and 2010, she led the Obama Administration's effort to set federal greenhouse gas emission standards, among other things. After leaving the administration, Freeman served as an independent consultant to the bipartisan Commission on the BP Deepwater Horizon Oil Spill in 2010.

She will join the company's public policy committee, where Harkin and Duberstein had served before their recently announced retirement -- and its board that sometimes recommends that shareholders vote against environmentally-friendly suggestions. For example, when an undisclosed party requested this March that ConocoPhillips devise business practices intended to prevent future harm to coastal Louisiana and aid in the restoration of wetlands, the board responded that the company already outlines its internal expectations for sustainable development across all its operations and has also been involved in numerous coastal restoration initiatives over the past several years. And when an undisclosed party asked ConocoPhillips to adopt and report on a plan to achieve quantitative goals for reducing total greenhouse gas emissions, the board said it continues to take steps such as investing in lower-carbon energy and reporting progress on its climate change management plans, emissions data and reductions. Neither proposal won a simple majority vote at the company's annual shareholder meeting in May.

In part due to ConocoPhillips' record on environmental issues, GMI gives the company a D on its corporate governance. The company's financial statements reflect an AGR score of 66, indicating higher accounting and governance risk than 34% of companies. ConocoPhillips needs to prove over time that it is dealing effectively with its challenges. Meanwhile GMI has warned for the past year that ConocoPhillips is at higher shareholder class action litigation risk than most rated companies in its region; in its best moment in September it was at higher risk than 66% and at its worst this March it was 76%.

ConocoPhillips insists on its dedication. "Our company is strongly committed to the highest standards for health, safety and environmental stewardship," CEO Ryan said in the July 10 announcement. "Jody's presence on the board will add a unique and valuable perspective, and help to advance our commitment to operational excellence around the world."

She should enjoy her welcome.

Source: ConocoPhillips Governance Update

Additional disclosure: I work for GMI as a corporate governance specialist.