Chesapeake Energy Corporation : Chesapeake CEO losing a title, but keeping powers
06/12/2012| 05:59pm US/Eastern
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Chesapeake Energy Corp's board of directors, despite being taken to task by investors for lax oversight of Chief Executive Aubrey McClendon, has changed the company's bylaws to allow the executive to keep powers he had as chairman.
McClendon, who co-founded Chesapeake, will lose his title as chairman by June 22 after the board and the company's biggest shareholders approve an independent chairman to replace him. That action was taken after Reuters reported that McClendon arranged for more than $1 billion in financing using his stake in thousands of company wells as collateral.
McClendon's personal lender is also a large source of financing for Chesapeake, a situation that may put the executive's interests ahead of shareholders, analysts and academics have said.
Following the board's move, taken after the annual shareholders' meeting on Friday, McClendon and the still-unnamed chairman each hold the power to call special meetings of shareholders and the board of directors. The Chesapeake board revealed the change in a filing with the U.S. Securities and Exchange Commission made on Friday.
"I guess that is sensible to give the CEO the right to call a board meeting as well as the chairman," said Paul Hodgson, senior researcher at governance firm GMI Ratings. "But I don't understand why the CEO, who is management, should have the right to call a special meeting of shareholders."
A board chairman, said Hodgson, is the ultimate representative for shareholders, and it is the responsibility of the chairman, not the CEO, to call a special shareholder meeting.
A spokesman for Chesapeake declined to comment.
"Given what's happened, I think the shareholders deserve an explanation," said Charles Elson, a corporate governance expert and professor of law at the University of Delaware.
Typically, a chairman or the board of directors, but not the CEO, have the authorization to call special shareholder meetings and board meetings, he said.
Since April, Chesapeake's board has made a number of changes to improve governance at the company, including cutting director pay and setting up the early elimination of a controversial corporate perk called the Founders Well Participation Program (FWPP).
With that perk, McClendon is granted 2.5 percent interest in every wells Chesapeake drills. He is required to pay operating expenses.
(Reporting by Anna Driver; editing by Matthew Lewis)
By Anna Driver
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