I've taken a few shots at Chesapeake Energy (NYSE: CHK) lately, largely over the lavish compensation its CEO Aubrey McClendon enjoys. Now, the massive gas producer's latest affront to its shareholders adds insult to that injury.
At the company's most recent shareholder meeting, opponents of the clubby atmosphere between Chesapeake's management and board couldn't muster the votes to bring about change. The voting did, however, show definite unrest among shareholders, and there's been speculation that even more votes could have gone against the company's lordly interests if Lou Simpson -- formerly the investing guru for Berkshire Hathaway's (NYSE: BRK-A)(NYSE: BRK-B) GEICO unit -- hadn't been put up for board election.
But I hold out little hope that Simpson alone can turn this governance disaster around. The latest sign? An Oklahoma law that Chesapeake helped craft, which requires that state's companies to have staggered boards.
Staggeringly unfriendly
In a staggered board, every director isn't up for election every year. That makes it harder for shareholders to clean house when a company isn't acting in their best interests.
But don't take it from me. Here's what Fool co-founder Tom Gardner had to say last year, when he testified before a U.S. House Financial Services Subcommittee:
When staggered boards are in place, a majority of shareholders looking to replace directors must overcome enormous institutional constraints. Removing a set of poorly performing directors may take multiple elections and several years, assuming it can be done at all. In cases of incompetent or corrupt leadership, staggered boards ingrain the status quo.
Some shareholders have been trying for years to get Chesapeake to move from a staggered board to a more shareholder-friendly annual election for all directors. This new legislation is great for the entrenched interests at the company, because when shareholders get miffed, the company can now throw up its hands and say, "Sorry! We have to have a staggered board! It's the law!"
Some companies actually like their shareholders
Chesapeake's conduct makes me gag because its greed and disregard for shareholders is so ridiculously transparent.
As I've covered on multiple occasions, McClendon gets paid a king's ransom whether or not the company performs. Worse yet, in 2010, five of the eight Chesapeake directors were compensated more than $500,000. When you're pulling in that kind of cheese, there's little doubt that you'd be thrilled if it were suddenly harder for shareholders to kick you off the gravy train.
While Chesapeake seems to be great at finding new and innovative ways to show shareholders that it doesn't give a rat's patoot what they think, other companies don't feel the same way. According to The Wall Street Journal, Oklahoma-based ONEOK (NYSE: OKE) and OGE Energy (NYSE: OGE) were disappointed when they learned about the law. (It's more than a year old, but it was buried in a massive 115 page bill.) ONEOK hasn't had a staggered board in years, and OGE had just recently stepped away from that arrangement itself.
I know that many investors are willing to overlook this major, obvious blemish on Chesapeake because of the promise that natural gas holds. But as for me, I don't think all of the Maalox on all of the grocery shelves worldwide could help me stomach this kind of obvious disregard for shareholder wishes.
