Chesapeake's McClendon to give up chairman post
NEW YORK (AP) - Aubrey McClendon said Tuesday he's giving up the chairmanship of Chesapeake Energy Corp. following shareholder complaints that his personal business interests could conflict with those of the company he runs.
The Chesapeake founder will remain as CEO. The company's board said it's searching for a non-executive chairman.
Investors have long complained about McClendon's compensation package, which allowed him to buy stakes in the company's oil and gas wells. Those complaints intensified last month following reports that McClendon took out more than $1 billion in loans to pay for his stake in the wells.
Some of the loans came from a group that was also planning to buy Chesapeake assets. Investors said McClendon's private dealings with the group could have influenced Chesapeake's decision to sell those assets.
Chesapeake's largest shareholder applauded the decision to remove McClendon as chairman and end its special investment program.
"Aubrey was right to recognize that these actions are in the best interests of the company and its shareholders," said O. Mason Hawkins, chairman and CEO of Southeastern Asset Management, Chesapeake's largest shareholder with a 13.2 percent stake.
Chesapeake, founded in 1989, is the second-largest U.S. natural gas producer behind Exxon Mobil Corp. The company was at the forefront of America's recent natural gas boom. It adopted new drilling techniques to unlock increasing amounts of natural gas from underground shale layers. This contributed to a surge in U.S. supplies that have pushed natural gas prices to 10-year lows.
Those low prices sank share prices and forced Chesapeake and other natural gas producers to shut down some of their operations this year. They're now focused on drilling wells that contain more oil.
Chesapeake shares fell further after the reports of McClendon's loans. They've gained nearly 8 percent in Tuesday trading to $19.89, but are still down about 10 percent for the year.
The board of directors said candidates for the non-executive chairman's position will have "no previous substantive relationship with Chesapeake," and it will take suggestions from major shareholders. It's also ending the well-investment program on June 30, 2014, 18 months ahead of its previously planned end date, to "eliminate a source of controversy." And the board is reviewing McClendon's loans.
"I am completely supportive of the board's plans," McClendon said in a statement. The actions will "enable me to focus my full time and attention on execution of the company's strategy."
McClendon puts the principal amount of the loans at $846 million.
Chesapeake has denied the well-investment program created any conflict of interest. It said McClendon negotiated the loans separately and did not participate in negotiations on the asset sale.
Still, by splitting its CEO and board chairman positions, Chesapeake will reduce some of the conflicts that can occur at the top of the company, said Charles Elson, a University of Delaware expert on corporate governance. Other companies are splitting the positions for similar reasons.
"It's a wise move," Elson said. "It doesn't make much sense for a CEO to be in charge of the organization that's supposed to be monitoring him."