Chesapeake shareholders spoke out at the company's annual meeting, both in comments and in their votes.
Shareholders overwhelmingly rejected 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.
Both men, who comprise Chesapeake's audit committee, had been targeted for replacement by several institutional investors and shareholder advisory services.
“This is an overwhelming vote of no confidence in the board of directors and their oversight,” said Michael Garland, director of corporate governance for New York City Comptroller John C. Liu.
CEO Aubrey McClendon faced strong questions and angry statements by some shareholders during the meeting.
Shareholder Gerald Armstrong criticized the board for repeatedly opposing his effort to change the company's incorporation to Delaware, where all directors would be up for election each year rather than the staggered board the company enjoys today.
“The absence of good governance practices has become even more apparent,” Armstrong told McClendon. “Accountability is what this effort is all about. It's time for a change. Five directors are likely to be replaced and it's likely you will not be with us next year. But I don't give up.”
Armstrong's proposal received 53 percent of the votes cast. The company did not specifically address his effort to reincorporate in Delaware, but said it is working to change director elections. “Chesapeake will take the necessary actions so that shareholders will have the opportunity to elect the entire board of directors at the 2013 annual meeting of shareholders,” the company said in a statement.
Another shareholder questioned the company's decision to spend $26 million in “apparently borrowed money” to support the Sierra Club's attack on the coal industry.
“Do you now think it was a mistake to unnecessarily create a fight with another fossil fuel,” the shareholder asked.
McClendon said the company was right to go after the coal industry.
“We're in a market share struggle with coal,” McClendon said. “As a result of that campaign, 150 new coal plants were not built. That demand will go to natural gas.”
Last month, the Sierra Club announced its new campaign “Beyond Gas,” in which it plans to go after the natural gas industry in much the same way.
“We are no longer associated with the Sierra Club,” McClendon said Friday. “Our relationship with them is a little different today than it was a few years ago.
Another shareholder asked how the new board will help the company decide whether to “kick the can down the road” by selling a few assets or whether it would consider selling the company outright.
“We don't intend to kick the can down the road,” McClendon said. “We intend to crush the can. We'll do that with asset sales.”
Earlier in the day, Chesapeake announced the sale of $4 billion in pipelines and other midstream assets. The sales price is more than 35 percent of the company's total market capitalization based on the share price.