Beach reading: Chesapeake’s annual meeting transcript

June 22, 2009

The weather may not exactly be cooperating here in the New York area, but it’s now officially summer, which means it’s time to pick up something a bit less serious to read. Since we’re not big fans of chic lit, we’re glad that we found an 8-K that Chesapeake (CHK) filed first thing this morning. The filing includes this transcript from the company’s annual meeting on June 12 and while the details of that meeting have been reported, we found the transcript too juicy to put down. Here’s a snip:

Please note Mr. Armstrong’s emphasis is on accountability, accountability, and accountability. Accountability is where Mr. Armstrong believes the Board has already failed. The members of the Board are apparently so entrenched that they disregarded sound and ethical business practices and allowed the Chairman to place his stock ownership in a margin account where he was forced to sell 90% of his shares when the market price of Chesapeake stock collapsed.

The Board members then rewarded him with a well cost incentive award, stock awards worth $20 million, and continued use of the corporate aircraft for personal purposes, creating total compensation of $100 million, making him the highest paid executive in our country. The Directors are also among the highest paid in the country, as well. Some were compensated more than three quarters of a million dollars in 2008.

This compensation is excessive, and has been brought about by the lack of independence and accountability of the Board; something that can be rectified by Mr. (Gerald) Armstrong’s proposal.

Maybe we haven’t looked hard enough, but we can’t recall a lot of filings that include transcripts of annual meetings in them. Of course, as we’ve footnoted in the past (see here and here) , Chesapeake’s annual meeting wasn’t likely to be a rote affair. One individual investor, Jan Fersing of Ft. Worth, Tx, was particularly harsh during the Q&A part of the meeting, when he told CEO Aubrey McClendon:

“So, your $2 billion fortune was not enough; you wanted more. But this time your hand got stuck in the cookie jar, and you couldn’t let go until your own cookies were taken in the process. And after your embarrassing losses, but with a carefully picked and extremely well compensated Board of Directors, Chesapeake shareholder funds were partially used to cover your losses.”

When McClendon answered, he had this to say:

I’m sorry you have such a dim view of my capabilities and my talents and my contributions. I’m quite confident, sir, that there’s not another CEO in the industry or in the country who has ever spent $185 million buying stock directly from his company, so the company could use that money to go out and explore for and find natural gas. In addition, I spent another $315 million in the open market buying stock, again, an amount that I don’t believe any other CEO has spent buying stock in their own company.
Why did I do that? Well, you tell me it’s because of my greed and my ego. I differ. I did it because I believe in what I do for a living; I create value. I started this company with a $50,000 investment, with my friend Tom Ward,20 years ago. We had 10 employees. We had about 3,000 square feet of space. Today, we employ 8,000 people directly. We employ another 50,000 people indirectly. We have 400,000 shareholders. A certain number of them are not happy today, but it’s a relatively small number, as you can see from the large percentages of people who re-elected our Directors. I’ve worked 100 hours a week, at least, since 1989 building this company. I’ve sacrificed a lot to do that. I sacrificed $500 million that I lost last Fall as a result, not because of bad decisions, but because of things beyond my control in this country’s economy and with regards specifically to natural gas prices.

So, I’m sorry that you find me as egocentric and greedy. But, I’ll tell you there’s not a harder working guy out there who thinks every day about how to create shareholder value. And, I’m dedicated to that. I’ve been dedicated to it for 20 years. And as long as this Board is willing to employ me, that’s what I’ll be dedicated to for the next 20 years. And I’m sorry that you’re going to sell your shares of stock. I’m sorry that there was nothing that we could say here that would change your opinion. I’m sure you’ll do well with whatever else that you invest your money in. But I want you to know that you do not properly characterize my past, my present, or my future by your prepared statements today.”

See? More entertaining than most anything else you’ll read this summer.

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