Chesapeake Energy earnings

Chesapeake Energy Corporation (CHK) Issues Letter as Pressure Mounts

Chesapeake Energy Corporation (CHK) Issues Letter as Pressure Mounts

It’s been a rough year for energy producer Chesapeake Energy Corporation (NYSE:CHK)? with its 50 percent decline in value and an activist investor publicly calling for shareholders to vote against two directors.

Chesapeake executives have fought back and in a letter authored by Chief Executive Officer Aubrey McClendon and director Merrill A. “Pete” Miller on Wednesday they said the company said has made “significant” compensation changes for board members and its CEO as noted by shareholders’ feedback, according to Bloomberg.

Other measures have included a replacement of McClendon as chairman of the board as well as “swift action” by them to answer  shareholder worries about a program that enables the company’s CEO to own a portion of almost all corporate wells, according to the letters.

The McClendon and Miller duo also responded to criticisms by New York City Comptroller John Liu in a May 17 letter addressed to shareholders.

How is Liu involved with the company? As comptroller, he oversees the 1.9 million shares of Chesapeake stock that New York City pension funds own; this equates to “less than 0.25% of Chesapeake’s common shares outstanding,” as noted in Wednesday’s letter.

But Liu has gone even further his displeasure and has suggested that shareholders vote against two of Chesapeake’s directors, Richard Davidson and V. Burns Hargis, who are up for re-election at the annual meeting on June 8.

The two are part of the audit committee, which is currently reviewing loans received by McClendon to assist in funding costs from his well-ownership program. According to Bloomberg, Liu scolded the two for their “costly failure to act in the best interests of shareowners.”

Response to Hargis, Davidson: Qualified 

Chesapeake responded to Liu’s urging to oust the two directors by writing in Wednesday’s letter, the two are “strong, highly qualified independent directors.”

Who are Hargis and Davidson? Hargis is president of Oklahoma State University and Davidson is the former chairman of Union Pacific Corp. (NYSE:UNP).

By listing their qualifications, it wasn’t good enough for Liu. He responded with a statement that said the company’s remedies were “overdue and only incremental. Had the board responded meaningfully to repeated concerns from shareowners over the years, Chesapeake would not be in the costly governance mess it is in today.”

More Concerns About the Two Directors

But Liu is not alone in his concerns with Davidson and Hargis. Glass, Lewis & Co. also recommended shareholders withhold their votes for the two; it is now the third advisory firm to do so as Institutional Shareholder Services and Egan-Jones Proxy Services issued comparable advice on May 20 and May 21.

Two analysts from Glass, Lewis & Co. Glen Perry and Courteney Keatinge wrote on Wednesday that the firm believed the two directors as members of the board’s audit committee, “failed to adequately monitor” transactions by McClendon that “pose a clear and substantial risk for potential conflicts of interest.”

In addition, they recommended shareholders to not vote for executive pay and four shareholder proposals that will supposedly improve corporate governance at the company.


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