Chesapeake Energy Corp. directors on Monday said they will enact many of the stockholder proposals a former board opposed at last year's annual meeting, and that they will cut compensation and perks for CEO Aubrey McClendon and other executives.
The Oklahoma City-based natural gas and oil company's directors made the changes as part of a comprehensive review of Chesapeake's corporate governance practices and executive compensation structure, according to a regulatory filing Monday.
The company declined further comment.
“This is a landmark corporate governance reform that gives shareowners a much stronger voice at the table,” activist Chesapeake shareholder and New York City Comptroller John C. Liu said Monday. “We welcome the new board's responsiveness to majority shareowner opinion.”
While calling Monday's announcement good news for shareholders, Argus analyst Phillip Weiss said he is looking for much more.
“These are all incremental positives, but I'm more interested in finding out the results of their investigation of McClendon,” Weiss said. “I'd like to know what the investigation really means to Aubrey.”
Chesapeake Chairman Archie Dunham in June said he expected the internal investigation into McClendon's personal finances to be completed within 90 days.
Monday's action is one of the first public steps by Chesapeake's rebuilt board.
Shareholders in June voted against the two directors who were up for re-election, passed resolutions the directors opposed and rejected the board's proposals. Facing strong criticism from its largest shareholders, Chesapeake's board then appointed five new independent directors, including Dunham, former chairman of ConocoPhillips Inc.
The board also said it accepted McClendon's recommendation that he not receive a bonus for 2012. Also on Monday, Chesapeake said it is changing its executive compensation program to tie pay to the company's performance, while reducing perks such as personal use of company aircraft.
Argus analyst Phillip Weiss has been critical of Chesapeake's executive compensation structure.
“If you lower his compensation, that's positive,” Weiss said Monday. “After all that came out about him (McClendon) this year and the poor performance of the stock, he doesn't deserve a bonus in 2012.”
Weiss compared Monday's announcement to 2008 when Chesapeake's stock price collapsed as natural gas prices plummeted. McClendon was forced to sell nearly all of his Chesapeake stock holdings to pay for loans he had taken to buy the stock.
Months later, the board awarded McClendon a $75 million bonus and paid him $12 million for a map collection he owned that adorned Chesapeake offices. McClendon later agreed to buy back the map collection to settle a shareholder lawsuit.
“It's better than the last time the company had a really bad year and you could argue things he did had an effect on it,” Weiss said. “No bonus in a year the stockholders suffered is better than a huge bonus when the stock price dropped.”
Chesapeake said Monday it will introduce proposals at this year's annual meeting to improve proxy access and remove supermajority voting standards in the company's bylaws. The company also said it will publish certain political expenditures on its website.
Chesapeake said Monday that it will ask the Oklahoma Legislature to exempt it from a regulation that requires staggered boards where only one-third of the directors face re-election each year.
Gerald R. Armstrong, an activist shareholder from Denver, first introduced a shareholder resolution for annually elected directors in 2008. The nonbinding proposal passed with 61 percent of shareholder votes that year, but Chesapeake resisted its implementation. Instead, the company lobbied successfully in 2010 for a change in state law to require Oklahoma incorporated companies to have directors elected in different years.
“They fought against me repeatedly and then they decide to do it only under a great deal of pressure,” Armstrong said Monday. “They should have adopted it right away and they would not have had this problem. I would have gone away and forgotten it, I think.”
Armstrong last year asked shareholders to approve a resolution to reincorporate Chesapeake in Delaware so it could have annual director elections. The Chesapeake board opposed the nonbinding resolution, which passed with 53 percent of votes.
“What disgusts me is why weren't they listening to begin with?” Armstrong asked. “If Aubrey is such a dynamic leader, why didn't he understand the benefits of being accountable to shareholders and say, ‘This looks like a good idea.' But he just sat there and said, ‘No. No. No.' to everything.”
OGE Energy Corp., the parent company of Oklahoma Gas and Electric Co. and Enogex, was among the companies caught up by the change in Oklahoma law for directors to serve staggered terms. Spokesman Brian Alford said OGE asked to be exempted from the provision in the 2011 legislative session.
“We are transitioning toward the annual election of directors,” Alford said.
CONTRIBUTING: Business writers Paul Monies and Brianna Bailey