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Chesapeake Shareholders Reelect Directors, Push Corporate Governance

Shareholders of Chesapeake Energy Corp. voted to reelect three directors at the company's annual meeting on Friday, but a majority signaled displeasure with the CEO and the board by voting in favor of two corporate governance resolutions.

Two current Chesapeake board members, Richard K. Davidson and Charles T. Maxwell, were reelected, and Oklahoma State University President Burns Hargis was elected after being appointed to the board in September 2008. Under Chesapeake's current rules, the three would not stand for reelection until 2012.

However, shareholders apparently would prefer annual elections for board members, according to a preliminary count issued on Friday. About 53% of the shares outstanding supported a resolution asking Chesapeake to require a majority shareholder vote to elect directors. About 59% voted for a resolution supporting an annual election of directors. Currently a third of Chesapeake's nine-member board stands for election every year.

Aware of the criticism he and his board has taken since the beginning of the year, CEO Aubrey McClendon opened the annual meeting by telling shareholders he wouldn't be able to answer some questions.

"Our legal counsel has limited our ability to answer some questions that may involve pending litigation," he said. "If I cannot answer your questions, I must ask for your cooperation and understanding."

Chesapeake is facing four separate shareholder legal actions that have been filed in the past few weeks concerning McClendon's compensation package. McClendon, who founded the company with Tom Ward and $50,000 20 years ago, was awarded a substantial compensation package last year that included a $75 million bonus.

Details of McClendon's compensation and other awards were provided in a Securities and Exchange Commission filing (see Daily GPI, Jan. 9), but in the past few months the company has been dogged by more criticism from shareholder groups and proxy investment firms.

The Louisiana Municipal Police Employee Retirement System filed a books-and-record demand regarding McClendon's bonus, while the New Orleans Employees' Retirement System claimed in a lawsuit that the company's board had failed in its fiduciary duties. In addition, the Toronto-based Ontario Teachers Pension Plan Board, the Firefighters Pension and Relief Fund for the City of New Orleans, and York County Employees' Retirement System of Pennsylvania all have claimed a breach of fiduciary duties by the board.

Oklahoma County District Judge Bryan Dixon on Tuesday approved coordinating the four cases, and he has set a July 13 hearing on the combined lawsuits.

There were some disgruntled shareholders at the meeting on Friday, but nearly all who addressed the meeting praised McClendon for keeping the company together last year as the global economy fizzled.

"As gas prices have pulled us down, they'll pull us up," McClendon told the crowd. "Not everybody here today is happy about the company's performance." However, he noted that in the past 10 years, of the "hundreds of S&P companies that exist, your company delivered the 12th best performance among all the S&P, with a return of 813%."

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