NYC Pension Group Urges Defeat Of Chesapeake Board Members

One of Chesapeake Energy's larger shareholders is urging others with a stake in the company to oust two board members, one of whom is OSU President Burns Hargis.

According to regulatory filings Thursday afternoon, the City of New York Office of the Comptroller, which represents pension funds that own 1.9 million shares of Chesapeake stock, is actively opposing the re-election of Hargis and Richard Davidson, former chief executive of Union Pacific Corp.  They are only two directors up for election at next month's shareholder meeting, and both are on the Board's audit committee.

The Board and Chesapeake CEO Aubrey McClendon have been the subject of intense criticism in recent weeks, following the revelation that McClendon borrowed more than $1 billion from companies that do business with Chesapeake.  McClendon reportedly used the loans to fund his participation in a unique company perk that allows him to claim a small stake in every well that Chesapeake drills.

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New York City Comptroller John Liu wrote, "We are particularly disturbed by the audit committee's failure to review, approve or disclose Mr. McClendon's personal loans secured by company wells."

When the story of McClendon's loans was first reported by Reuters last month, Chespeake's Board of Directors claimed to have had full knowledge of his financing arrangements.  But days later, in an apparent answer to criticism of its governance, the Board backtracked, saying that, in fact, it had only a "general awareness" and no "specific" knowledge of McClendon's personal financing arrangements with regard to the well program, and that it would be reviewing the loans.

In the same news release, the Board announced that it had negotiated with Mr. McClendon to terminate the well program 18 months ahead of schedule, on June 30, 2014.  Further, the parties also agreed that McClendon should relinquish his position as Board Chairman, to be replaced by an independent, non-executive Chairman.

While the New York City Comptroller is calling for the defeat of board members at the annual meeting, another group of shareholders wants the annual meeting postponed.  As the Oklahoma Impact Team uncovered earlier this week, the shareholders requested that a judge postpone the meeting until Chesapeake corrects its proxy statement so that it contains "information which is full and complete and not misleading."

A hearing on the request has been set for May 30.