Chesapeake Energy Corporation (NYSE:CHK) directors continue to be on the defensive this week despite taking a $1.65 million dollar cut to pay and perks. The move came amid concerns that the board failed to provide sufficient oversight over CEO Aubrey McClendon, whose spending spree, and the debt that came with it, is currently threatening the company.
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Even in light of the pay cut, the directors at Chesapeake continue to be paid above average for their work. Under the new arrangement, their compensation will still be 34 percent more than directors at similar exploration and production firms. In the new pay plan, they will be paid $100,000 in cash and $250,000 in stock, and will no longer be able to use the firm’s private jets for personal travel.
The lack of independence at Chesapeake was brought into the spotlight when revelations surfaced that McClendon had acquired a personal stake of 2.5 percent in the company’s producing wells, and amassed $846 million in debt from Chesapeake lenders and business partners to do so.
At least one current and one former director also had unusual relationships with McClendon. Burns Hargis, one of Chesapeake’s directors, is also a director with BOK Financial Corporation (NASDAQ:BOKF), which is a lender to Chesapeake. BOK’s primary shareholder, George Kaiser, lent money directly to McClendon and his wife in 2009, secured in part by the entity that holds McClendon’s interests in the Chesapeake wells. Frederick Whittemore, a director from 1993-2011, directly loaned money to McClendon, secured again by McClendon’s personal interests in Chesapeake wells.
The tangle of yhrit involvement goes further, with Chesapeake having business arrangements with several of its supposedly independent outside directors. National Oilwell Varco Inc. (NYSE:NOV), a drilling equipment manufacturer, is headed byMerrill “Pete” Miller, and did $343 million in business with Chesapeake since 2009. The son and daughter in law of Frank Keating, another director, worked for Chesapeake and were paid at least $251,515 in 2009 for real estate development activities. Burns Hagis is the President of Oklahoma State University’s flagship campus, which received $10 million in funding since 2008.
All of these activities have raised questions about the independence and appropriateness of the board at Chesapeake. Egan-Jones Proxy Services today suggested that investors withhold nomination votes for Hargis and Richard Davidson.