Chesapeake Shareholders Boot Two Directors; McClendon Next?

At today’s annual meeting, shareholders of Chesapeake Energy Corp. (NYSE: CHK) voted against retaining incumbent directors V. Burns Hargis, president of Oklahoma State University, and Richard Davidson, former chairman and CEO of Union Pacific Corp. (NYSE: UNP). Hargis had been a director since 2006 and Davidson since 2007. Some 63% of shareholders voted against retaining the two incumbents.

Shareholders also voted in favor of changing the company’s method of electing directors to allow for annual voting by all shareholders on all directors at the same time. Under the company’s previous “classified” system, directors’ terms were staggered with only two or three of Chesapeake’s nine directors facing re-election in any year.

It’s not immediately clear whether the two defeated directors will be counted as part of the four that the company had agreed to replace earlier this week. At that time, two large shareholders in Chesapeake, Southeastern Asset Management and Carl Icahn, had wrung from the company’s board the right to appoint four directors by the end of this month.

CEO Aubrey McClendon also got slapped by shareholders. Only 20% approved an advisory vote on McClendon’s compensation package.

Two-thirds of Chesapeake’s board could be new appointees by July 1st, and McClendon won’t have hand-picked any of them. Less than a month ago McClendon was the chairman of a board he himself selected. If the new directors are truly independent, McClendon ought to be offered a salary of no more than $1/year, which he is free to accept or to reject and hit the streets.

Paul Ausick