Chesapeake Readies Annual Meeting: McClendon, Icahn Expected to Clash
It's pitchfork time for Chesapeake Energy Corp.
The beleaguered oil and natural-gas producer will hold its annual shareholders meeting Friday in Oklahoma City. Flamboyant Chief Executive Aubrey McClendon, along with Chesapeake board members, better be ready to dodge some rotten tomatoes.
The gathering comes amid one of the rockiest period in company history. Its shares are down more than 30% since April, when it came to light that Mr. McClendon took billions in personal loans from financial institutions involved in transactions with the company. Mr. McClendon's loans were intended to fund the drilling costs of the small stake he owns in every Chesapeake well. The loans caused an uproar, brought the company to regulators' attention and highlighted long running concerns that the board was not active enough.
The transactions also threw a spotlight on the company's ability to fund its ambitious drilling program, at a time when natural-gas prices are hovering near decade-low levels. Chesapeake, the second-largest U.S. natural gas producer, needs to spend big to become more of an oil producer, with oil drilling being more profitable in the current market environment. But to make the switch, the energy company has engaged in some complex financial transactions that befuddled investors.
After the uproar, Chesapeake's board quickly moved to end Mr. McClendon's part-ownership of the wells, and said it was separating the CEO and chairman-of-the-board role, stripping Mr. McClendon of significant power. The board also has cut its lofty pay, which last year averaged more than $400,000 in cash and stock, by 20%.
But that hasn't pacified restive shareholders, some of which have sued to postpone the meeting until more information surfaces about Mr. McClendon's loans. A federal judge will hear their case Tuesday. Others are calling for an outright overhaul of the company's leadership.
New York State Comptroller Thomas DiNapoli, sole trustee of the N.Y. State Common Retirement Fund, which owns Chesapeake shares, urged fellow shareholders in late May to withhold their vote on the two board members up for re-election, to signal their displeasure with the board. Proxy advisory firms such as ISS and Glass, Lewis have recommended the same tough approach. "I am pained to watch our investment free-fall as shares plummet to lows not seen even during the recent financial crisis," Mr. DiNapoli wrote.
Chesapeake has stressed that both retired Union Pacific Corp. CEO Richard Davidson and Oklahoma State University president V. Burns Hargis are "strong, highly qualified independent directors and warrant shareholder support" in their re-election bid.
Activist investor Carl Icahn, who last month became one of the company's largest shareholders, is on a quest for direct shareholder representation on the board—by having two members designated by Mr. Icahn himself and two by another large shareholder. Chesapeake's board said it would only consider the proposal.
"To engender any meaningful credibility among shareholders, corporate governance reforms cannot, in our view, be led by directors whose irresponsible actions have brought this company to the edge of the proverbial cliff," Mr. Icahn wrote in a letter to the board.