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Energy Companies Are Exhibit A in Shareholder-Rights Battle

Ted Allen, head of publications/governance counsel at influential proxy voting firm Institutional Shareholder Services, said he couldn't comment on the Nabors or Chesapeake proposals, which are still under review by ISS. However, Allen said the public pension funds are correct in focusing on this issue, which had strong support from shareholders the last time a major challenge was mounted in 2007.

"Proxy access is one of most interesting issues shareholders have this year, and they have picked wisely to have best chance of success, with well-targeted proposals," Allen said.

ISS has been no friend to Chesapeake in the past. Last year, ISS recommended that Chesapeake shareholders oust McClendon as CEO in response to the company's unwillingness to adopt reforms in setting executive compensation, an effort that resulted in Chesapeake agreeing to an independent compensation consultant hours before its annual meeting.

The ability to gain access to the Chesapeake board is hindered by a law passed by the Oklahoma legislature in 2010 mandating that large publicly traded companies incorporated in the state, which includes Chesapeake, have staggered terms for board members, at least until 2015. Oklahoma is one of only two states to offer that protection to boards, and it is law that Chesapeake critics contend was written specifically for the oil and gas company.

Proxy access only sets up a mechanism for putting director nominees on the ballot -- and it's non-binding. It doesn't guarantee representation by shareholders or public funds, which would still have to make their case to shareholders, and counter the board view that it is a distraction for the companies and will lead to a focus on short-term results.

For the pension funds, it would at least be a new beginning, and an end to a great deal of frustration, too.

"If the status quo was sufficient, the board would not have such a pathetic performance of returning value to shareholders," Illinois' Atwood says. "Shareholder value is not a metric they are using."

A pension official involved in the battle for the Chesapeake board said there is little disagreement about CEO McClendon being a lightning rod for criticism and a "risk addict," but, as long-term investors, the pension funds aren't in the position to sell in anger as other shareholders might, leading to the looming fight. "If you don't have independent board overseeing him, forget about it," the pension official said.

-- Written by Eric Rosenbaum from New York.

>To contact the writer of this article, click here: Eric Rosenbaum.

>To follow the writer on Twitter, go to Eric Rosenbaum.

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