Chesapeake Energy Corp. shareholders on Friday soundly rejected two board members up for reelection and approved three shareholder-initiated resolutions at the company's annual meeting in Oklahoma City, signaling a turning point for the operator's corporate governance and likely for the future of CEO Aubrey McClendon.

The board meeting came a few hours after the company announced that it would sell its midstream businesses to Global Infrastructure Partners in three separate transactions for more than $4 billion in cash. The sales, rumored for days (see Daily GPI, June 7), would net Chesapeake about $2.4 billion and cut previously budgeted capital spending over the next three years by $3 billion (see related story).

The historic shareholder revolt proved to be a positive for the stock, which rose 2.86% (51 cents) to end the week at $18.36, versus a close on Thursday of $17.85. More than 30.93 million shares traded hands on Friday, less than the average volume of 31.78 million. The previous Friday, ahead of Memorial Day weekend, Chesapeake ended at $16.90.

However, the huge asset sale may not have assuaged shareholders in any case. They ousted V. Burns Hargis, president of Oklahoma State University, and former Union Pacific CEO Richard K. Davidson, who had been reelected by Chesapeake's board. However, Hargis received only 26% of the preliminary shareholder votes cast, while Davidson captured just 27%, which led both men to tender their resignations under a new majority voting bylaw, also was enacted on Friday.

In addition, board member Charles Maxwell retired as expected on Friday, leaving the board in disarray. Following "extensive discussions" with representatives of Southeastern Asset Management, its largest shareholder (13.6%), and Carl Icahn (7.8%), Chesapeake agreed to replace four existing independent directors, with three proposed by Southeastern and one by Icahn (see Daily GPI, June 5).

With Maxwell's Hargis' and Davidson's departure, there remains one other open seat, which is to be filled by the incoming chairman, expected to be announced later this month.

"Chesapeake appreciates shareholder feedback and will act appropriately with regard to the matters voted on," executives said. "Chesapeake has recently taken important actions to enhance corporate governance and increase management oversight by, among other things, reconstituting the board of directors. As previously announced, Chesapeake will add a new independent nonexecutive chairman and four new independent directors proposed by shareholders to its nine-member board within the next two weeks.

"Chesapeake will also take the necessary actions so that shareholders will have the opportunity to elect the entire Board of Directors at the 2013 annual meeting of shareholders."

McClendon presided over the one-hour meeting, and he heard only a smattering of discouraging remarks from the shareholders who attended. Most of the biggest shareholders already had voiced their opinions in the past two months via proxy statements about what needed to change within the company. More than 200 had pre-registered to attend this year's meeting; last year only 85 were registered to attend.

During his presentation shareholder Gerald Armstrong told the CEO, "It's likely you might not be with us next year."

And Icahn representative Vincent J. Intrieri called McClendon a "great oil and gas man," but said, "even great executives need vigilant oversight."

According to preliminary statistics, 549 million shares were represented by proxy at the meeting, which is about 85% of the company's shares. Unlike previous annual meetings, Chesapeake did not webcast or teleconference Friday's meeting, and no recordings or videotaping were allowed. Media in attendance also were not allowed into the meeting hall and watched the proceedings in another room. Journalists who did not attend the meeting relied on twitter feeds and third-party accounts to interpret what happened.

McClendon stayed focused on the positive, and he never discussed any of the financial dealings that have been written about him since March. Instead, he told the audience that the corporate governance changes would help the company succeed as it moves into "asset harvesting" after spending years acquiring big leaseholds and developing a premier set of assets that have made it the second largest natural gas producer in the country.

However, the CEO appears to have lost his shareholders' confidence. In a year that some have called the "shareholder spring" as some have forced change by gaining majority votes at annual meetings, Chesapeake found itself under revolt.

The shareholder-initiated proposed resolutions receiving majority votes cast were:

The proxy access resolution basically gives Chesapeake shareholders the right to oust members of the board every year. It follows one approved by Nabors Industries Ltd. on Tuesday, which was considered an industry first (see Daily GPI, June 6).

However, a Chesapeake shareholder proposal relating to disclosing political lobbying expenditures was defeated; it only received the support of 36% of those casting votes. Another to approve named executive officer compensation was defeated after receiving the support of only 20% of the votes cast.

Shareholders approved Chesapeake's proposal to amend to bylaws to implement majority voting in director elections. The proposal received the support of 97% of the votes cast but only 64% of the shares outstanding, which was less than the two-thirds required for an amendment to the bylaws. However, the board voted to adopt the bylaw based on shareholder support.

A Chesapeake proposal to amend the company's long-term incentive plan passed with the support of 86% of the votes cast. However, a board proposal to approve the annual incentive plan for Chesapeake's management team was defeated; only 31% were in support.

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