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May 21 (Bloomberg) -- Chesapeake Energy Inc. shareholders should vote against two board members and refuse to endorse Chairman and Chief Executive Officer Aubrey McClendon’s pay at next month’s meeting, two shareholder advisory services said.

The board of Chesapeake has conducted “egregiously weak” oversight and executive pay is disconnected from financial performance, Egan-Jones Proxy Services said in a statement released today to clients. Chesapeake needs “board-level change,” Institutional Shareholder Services said in an e-mail today. Chesapeake’s annual meeting is scheduled for June 8 at its headquarters in Oklahoma City.

Chesapeake, the second-largest U.S. natural-gas producer, is borrowing $4 billion to ease a cash-flow shortfall that Fitch Ratings estimates will reach $10 billion this year. The company said May 1 it may run out of money next year to fund its drilling program. Its shares have plunged 33 percent this year as gas prices reached 10-year lows and probes began into McClendon’s personal finances.

“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,” ISS analysts led by Kim Castellino wrote in a note to clients dated yesterday and provided to Bloomberg today.

Withholding Votes

Shareholders should withhold votes for board members Richard K. Davidson and V. Burns Hargis, ISS and Egan-Jones said. Both men are members of the firm’s audit committee and are responsible for failing to properly review McClendon’s decision to borrow money against his stake in wells drilled by the company, New York City Comptroller John C. Liu said in a letter to shareholders May 17.

“We strongly disagree with the recommendations of ISS and Egan-Jones,” Michael Kehs, a Chesapeake spokesman, said today in an e-mail. Davidson and Hargis “are strong, independent and highly qualified directors who have contributed significantly to Chesapeake.”

Shareholders should support a proposal by Liu calling for the right for long-term shareholders to nominate board members directly, ISS and Egan-Jones said. The firm also supported three other shareholder-backed proposals.

ISS also advised shareholders not to ratify a revised incentive bonus plan for McClendon and other top executives.

McClendon’s “pay remains misaligned with company performance and the company continues to employ compensation practices that may not ensure strong pay-for-performance alignment even with changes planned for 2012,” ISS said.

Chesapeake rose 3.8 percent to $14.91 at the close in New York.

ISS is a unit of MSCI Inc. The Egan-Jones proxy service is a unit of Egan-Jones Ratings Co.

To contact the reporter on this story: Jim Polson in New York at

To contact the editor responsible for this story: Susan Warren at

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