Chesapeake Energy Corp. shareholders should vote against two board members up for re-election this year because they’ve failed to safeguard the interests of investors, New York City Comptroller John Liu said.
Shareholders should hold directors’ Richard K. Davidson and V. Burns Hargis “feet to the fire,” Liu wrote in a letter today and addressed to owners of Chesapeake stock.
Liu, who oversees 1.9 million shares owned by New York City’s pension funds, cited “longstanding concerns with the board of directors’ independence, oversight and accountability,” as reasons for withholding votes from the directors proposed by Chesapeake.
Chesapeake’s shares have dropped 39 percent this year as gas prices reached 10-year lows in New York and company said it was reviewing Chief Executive Officer Aubrey McClendon’s personal financial transactions involving his stakes in company wells. The CEO and co-founder got personal loans to pay his costs in the wells from companies also doing business with Oklahoma City-based Chesapeake.
The U.S. Securities and Exchange Commission has begun an informal inquiry, the company said. Chesapeake shares fell 3.5 percent to $13.55 at the close in New York, its lowest price since March 2009.
Audit Committee Members
Davidson, former chairman of Union Pacific Corp., has been on Chesapeake’s board since 2006, according to the company website. Hargis, president of Oklahoma State University, has been on the board since 2008. Both men serve on the company’s audit committee and are the only directors up for re-election this year, Liu wrote in the letter.
The drop in Chesapeake’s share price and its other financial troubles “demonstrate the audit committee’s costly failure to act in the best interests of shareowners,” he wrote. “Shareowners urgently need new directors who are willing and able to exercise strong, independent oversight of Aubrey McClendon, a willful CEO with a penchant for risk.”
Liu also urged shareholders to vote in favor of a shareholder proposal sponsored by the New York City Pension Funds for a bylaw change that would allow anyone holding at least 3 percent of the company’s stock for three continuous years to nominate board members.
Chesapeake’s management opposes Liu’s proposal on director nominations, according to its proxy statement. Jim Gipson, a Chesapeake spokesman, declined to comment on today’s letter.
Chesapeake is scheduled to hold its annual meeting in Oklahoma City on June 8.