{"id":7227,"date":"2012-06-08T09:00:17","date_gmt":"2012-06-08T14:00:17","guid":{"rendered":"http:\/\/stateimpact.npr.org\/oklahoma\/?p=7227"},"modified":"2012-06-08T09:42:51","modified_gmt":"2012-06-08T14:42:51","slug":"declassified-chesapeake-wants-relief-from-an-oklahoma-law-it-helped-write","status":"publish","type":"post","link":"https:\/\/stateimpact.npr.org\/oklahoma\/2012\/06\/08\/declassified-chesapeake-wants-relief-from-an-oklahoma-law-it-helped-write\/","title":{"rendered":"Declassified: Chesapeake Wants ‘Relief’ from an Oklahoma Law It Helped Write"},"content":{"rendered":"
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Joe Wertz \/ StateImpact Oklahoma<\/p>\n

Chesapeake Energy's Oklahoma City campus.<\/p>\n<\/div>

Just two years ago, Chesapeake Energy helped write a state law mandating staggered terms for the board members of large publicly traded Oklahoma companies.<\/p>

This week, the Oklahoma City-based natural gas giant said it would seek \u201crelief<\/a>\u201d from the very same law, which was designed to help prevent what\u2019s essentially happening now at Chesapeake: a takeover of its corporate board.<\/p>

The state law is one of many issues lingering in the background of what is likely to be a contentious annual meeting of Chesapeake\u2019s shareholders today in Oklahoma City. StateImpact Oklahoma will be live-blogging that event here<\/a> beginning at 10 a.m. CDT.<\/p>

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The law requires companies incorporated in Oklahoma to have what\u2019s known as a \u201cclassified\u201d board structure. That means board members are divided into classes with staggered elections so that only one-third of the members face a vote of shareholders each year.<\/p>

Such classified structures make companies less vulnerable to board takeovers, a threat Chesapeake now faces.<\/p>

After weeks of headlines questioning<\/a> the company\u2019s entangled financial relationship with its CEO Aubrey McClendon, Chesapeake this week bowed to the demands of its two largest shareholders, which now include billionaire corporate raider Carl Icahn. The activist investor and Southeastern Asset Management will name four new Chesapeake board members, the company said<\/a> Monday.<\/p>\n

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Joe Wertz \/ StateImpact Oklahoma<\/p>\n

Chesapeake Energy's Oklahoma City campus.<\/p>\n<\/div>\n

Classified Information<\/h3>

Chesapeake\u2019s preferred board structure, the type that became enshrined in Oklahoma law, used to be popular in the world of corporate governance. Not anymore.<\/p>

\u201cThe trend has been away from classified boards and toward holding annual elections,\u201d says Melissa Aguilar, a research associate in the corporate leadership department at The Conference Board, an independent and nonprofit business research organization.<\/p>

A popular and effective shield to hostile takeovers, classified boards were adopted by many companies in the 1980s \u2014 usually with shareholder approval, according to a December 2011 report<\/a> by Aguilar and The Conference Board.<\/p>

Things changed dramatically after the Internet and telecom bubbles burst in 2000, and the tide of corporate governance shifted towards empowering shareholders. Misconduct at companies such as Enron and WorldCom hastened the change, according to the report.<\/p>

About 60 percent of publicly traded companies had classified boards in 2002. By 2011, that number fell to less than half, according to the report. Less than one-third of Chesapeake\u2019s peers in the S&P 500 peers have classified boards.<\/p>

\u201cCorporate governance experts believe one-year board terms give shareholders more power and more accountability,\u201d Aguilar says. \u201cIt\u2019s easier for them to replace the majority of the directors.\u201d<\/p>\n

Whether \u2018Friendly or Unsolicited\u2019<\/h3>

Chesapeake helped write the Oklahoma measure, which former Gov. Brad Henry signed into law in June 2010. The legislation, Senate Bill 1132, was a small part of a much larger bill overhauling Oklahoma\u2019s statutes on limited partnerships.<\/p>

The law received overwhelming support in the state House and Senate, and its passage was praised by the State Chamber of Oklahoma for ensuring \u201ccontinuity of leadership\u201d and \u201corderly transitions\u201d at Oklahoma public companies.<\/p>\n

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Oklahoma House of Representatives<\/p>\n

State Rep. Fred Jordan, R-Jenks, authored an amendement to the bill after OGE Energy and Oneok complained about the corporate board statute..<\/p>\n<\/div>

\u201cFor a state like Oklahoma, where most of our public companies have been established by local entrepreneurs, the new law gives Oklahoma companies and their boards more say in the event of an acquisition or business combination, no matter if it is friendly or unsolicited,\u201d chamber president and CEO Fred Morgan wrote in a December 2010 editorial<\/a>.<\/p>

The board law was amended in 2011 after complaints from ONEOK and OGE Energy. ONEOK had already declassified its board in 2008 and didn\u2019t know about the new law until a Wall Street Journal<\/em> reporter reached out<\/a> for comment.<\/p>

\u201cWe continue to believe that your decision as a shareholder to have an annual election of directors is consistent with best practices in corporate governance,\u201d the company\u2019s CEO wrote in a June 2011 letter to shareholders<\/a>. \u201cWe also believe that corporations should be able to work with their shareholders to determine which type board is appropriate.\u201d<\/p>

ONEOK complained to Gov. Mary Fallin, who signed House Bill 2658. That law, authored by state Rep. Fred Jordan, R-Jenks, amended the previous one to grandfather in companies such as ONEOK so that they could keep their declassified board structure.<\/p>

We were trying to give the companies some flexibility to either have a yearly election or a staggered election with some of the board members,\u201d Jordan tells StateImpact. \u201c[OGE and ONEOK] just wanted to be able to do it the way they\u2019d done it for years.\u201d<\/p>\n

Relief Map<\/h3>

Chesapeake wouldn\u2019t comment on its plans to secure relief from the law, which is effective until 2015.<\/p>

\u201cThe Board will also seek relief from the Oklahoma statute mandating classified boards of directors for certain Oklahoma incorporated public companies so that shareholders will have the opportunity to elect the entire board of directors at the 2013 Annual Meeting of Shareholders,\u201d the company wrote in a press release<\/a>.<\/p>\n

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