Chesapeake Energy Corp. directors on Wednesday released a letter to shareholders defending the board and its current directors.
The letter points out that Chesapeake directors have made “significant changes” to the company's executive compensation program and last week cut its compensation and benefits to directors.
“These measures are responsive to shareholder feedback and ensure that Chesapeake's compensation programs are fully aligned with peers while reinforcing the link between directors' and executive officers' interest and those of shareholders,” the letter stated.
Wednesday's letter specifically addressed concerns raised last week by New York City Comptrol
The California Public Employees' Retirement System, Institutional Shareholders Services and Egan-Jones Proxy Services each have issued similar requests over the past two weeks.
The shareholders groups have criticized Chesapeake's directors for issues including allowing CEO Aubrey McClendon to use his personal stake in Chesapeake wells as collateral for up to $1.1 billion in personal loans and for allowing McClendon to operate a hedge fund that traded in commodities, including natural gas.
“The continuing directors serving on this board have repeatedly failed to respond to significant shareholder concerns and emerging best practices, demonstrating a lack of independent oversight at a board chaired by a founder/CEO,” ISS said last week.
Chesapeake directors, however, pointed out Wednesday that they have taken “swift action to
Wednesday's letter also specifically addressed the two directors who are up for re-election at the June 8 annual meeting.
“Chesapeake's board is comprised of independent, highly qualified and accomplished professionals who have the skills and experience necessary to serve on our board,” the letter stated.
The letter further stated that Hargis and Davidson both “are highly credentialed professionals who bring to the board financial, operational and legal expertise that benefits the board, Chesapeake as a corporation and its shareholders.”
The New York City comptroller was not swayed by the letter.
“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,” Liu said in a statement Wednesday. “The changes now being offered, overdue and only incremental, may address some symptoms of a captive board, but hold harmless the root problem — the directors themselves and their failure to protect long-term shareowner value.”
Industry analyst Fadel Gheit said Wednesday's letter is unlikely to change many opinions.
“I don't think it's saying anything that people are unaware of,” said Gheit, an analyst with Oppenheimer in New York. “Obviously people are angry and frustrated. They have lost a lot of money. They have the right to demand a change.
“The board of directors should have some fiduciary responsibility and should have sounded the alarm much sooner than when the media attention started. That's what they're there for and what they're handsomely compensated for.”