Chesapeake Energy Corp. shareholders on Friday spoke out against the company's leadership, both in comments and in their votes.
Stockholders overwhelmingly voted against Oklahoma State University President Burns Hargis and former Union Pacific Corp. executive Richard K. Davidson, the two directors up for re-election. Hargis received only 26 percent of the vote; Davidson received only 27 percent.
Chesapeake said the two directors turned in their resignation following the 65-minute meeting. The board “will review the resignations in due course.”
“Chesapeake appreciates shareholder feedback and will act appropriately with regard to the matters voted on today,” the company said in a statement. “Chesapeake has recently taken important actions to enhance corporate governance and increase management oversight by, among other things, reconstituting the board of directors.
Chesapeake announced Monday that four board members would be replaced with new directors chosen by its largest shareholders, Southeastern Asset Management and billionaire shareholder activist Carl Icahn.
The company has said the new board will be in place by June 22.
“Good corporate governance is at the essence of all well-run companies,” said Vincent J. Intrieri, a representative for Icahn. “We're extremely pleased the company has announced a reconstruction of its board. This is a positive step in the right direction.”
Intrieri had strong words for CEO Aubrey McClendon as well.
“We believe you are a great oil and gas man, but even great executives need oversight from a board that is focused on creating value,” he said.
Change won't come to the board immediately.
Southeastern, which owns more than 13 percent of Chesapeake's stock, said it would support retaining Hargis until the board's audit committee finishes its review of McClendon's finances.
“We are hopeful that this review can be completed in a matter of weeks not months,” the Memphis-based money manager said in a regulatory filing.
Chesapeake and its directors have faced intense scrutiny since an April 18 report that McClendon used his own stake in Chesapeake wells as collateral for up to $1.1 billion in personal loans.
The company has drawn criticism from several institutional investors and shareholder advisory services, including New York City comptroller John C. Liu.
A representative from Liu's office attended Friday's meeting. Michael Garland, the comptroller's director of corporate governance, said he expected the directors to be voted out, but he was surprised by the overwhelming vote.
“I am unaware of a vote against directors that high at any large public company. It's unprecedented,” Garland said. “Today's vote was more than about those two directors. It's about a referendum on the board.”
Garland said he is “cautiously optimistic” that the new board will provide improved oversight.
“We're hopeful that today's actions will initiate a long-overdue process to reconstitute the board with truly independent directors who will act in the long-term interest of the company, its shareholders and its employees,” he said.