Chesapeake To Cut Costs, Open Board Nominations
Chesapeake Energy Corp., a major natural-gas producer, said it would give shareholders the right to nominate some directors--a key governance concession--while slashing charitable and political spending and cutting overhead costs.
Aubrey McClendon, Chesapeake's co-founder and chief executive, will get no bonus for 2012, on his own recommendation, and a perk granting him personal use of corporate aircraft will be limited, the company said in a Securities and Exchange Commission filing.
Investors have been pressing for changes at the company, which has been criticized for heavy spending and extravagant compensation for executives and directors. Its shares dropped 25% last year as it racked up debt, weathered a liquidity crisis and came under scrutiny for Mr. McClendon's financial dealings.
In 4 p.m. trading Monday on the New York Stock Exchange, the stock was up nearly 1% at $17.62.
Chesapeake, based in Oklahoma City, said Monday that committees of its board were reviewing both the company's corporate governance and its compensation policy.
The board is reviewing Mr. McClendon's practice of borrowing of hundreds of millions of dollars from companies that have done deals with Chesapeake. Those loans have enabled him to take advantage of a controversial perk that let him amass small stakes in every well Chesapeake drilled.
The company has denied that the arrangement posed any conflict of interest. Chesapeake and Mr. McClendon agreed in May to end the perk as of June 2014.
Chesapeake already has made significant corporate-governance changes; in June it replaced a majority of its board with directors proposed by its largest shareholders, Southeastern Asset Management Inc. and activist investor Carl Icahn.
Mr. McClendon also has stepped aside as chairman, though he remains a director. The company has said it would cut board compensation by 20%.
Chesapeake said Monday that it also would introduce a binding measure at this year's annual meeting that would allow investors who have owned at least 3% of its shares for at least three years to nominate up to 25% of the company's directors. The measure would mirror a nonbinding one introduced last year by New York public-employee pension funds managed by New York City comptroller John C. Liu, and which was backed by the majority of votes cast.
"This is a landmark corporate-governance reform that gives shareowners a much stronger voice at the table," Mr. Liu said in a statement. His office represents pension funds that own about 1.6 million Chesapeake shares.
The sweeping governance and pay changes at Chesapeake represent a significant rebuke to Mr. McClendon's leadership, some experts said. "This is a repudiation of his earlier governance philosophy," said Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school. "How can he survive long-term given these radical shifts?"
A spokesman for the company declined to comment on Mr. Elson's remarks, as did a personal spokesman for Mr. McClendon. The CEO was recently praised by Southeastern, which called the company's earlier actions "the most significant governance changes that we have ever witnessed at a company."
Chesapeake's proxies now list only directors nominated by the company. Proponents of the change say proxy access should improve returns by forcing boards to be more responsive to shareholders. Without such access, investors eager to shake up boards must wage costly campaigns and foot the bill for distributing their own ballots.
Chesapeake was among the few companies where a proxy-access proposal passed last year. It lost a 2012 shareholder advisory vote on executive pay.
The company has struggled financially as prices for its principal product have fallen to the lowest levels in a decade, eroding its revenues. The company said Monday that it will seek to trim overhead expenses by $190 million over the next two years. It also will cut its charitable, political and trade-related spending by 30%, 40% and 50%, respectively, over the next three years.
Chesapeake spent more than $56 million on charitable causes between 2010 and 2011, according to company documents. It made $1.5 million in political contributions in 2012 and spent $2.4 million on lobbying over the past two years, according to the Center for Responsive Politics, a nonprofit group.
The latest spending cuts come on top of a raft of measures to shore up its balance sheet. Chesapeake sold assets totaling more than $11 billion last year.
Copyright (c) 2013 Dow Jones & Company, Inc.
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