Pension wallflowers at the Chesapeake dance
By Matthew Goldstein and Jennifer Ablan
You gotta give credit to O. Mason Hawkins and Carl Icahn, the unlikely partnership that managed to get some important concessions from Chesapeake Energy Corp., the embattled natural gas company. But when it comes to public pensions that also own stock in Chesapeake, it’s a far different story.
The head of Southeastern Asset Management and the billionaire activist trader came together to get Chesapeake to agree to shake-up its board and allow the pair to name four new independent directors on the company’s nine-member board. And for the most part, Hawkins and Icahn managed to wrest that change from Chesapeake without much help from public pensions that own shares in the Oklahoma-based company.
The move is an attempt by Chesapeake to deal with criticism shareholder anger that company long has been to forgiving to the wheeling-and-dealing of its chief executive Aubrey McClendon.
It’s not clear yet whether the board shake-up will be enough to right the ship at Chesapeake, which has been reeling ever since the Reuters’ reporting duo Brian Grow and Anna Driver broke the news that McClendon had secured more than $1 billion in loans from a company doing business with Chesapeake. McClendon got the loans to continue to participate in a well drilling program the company offered as a perk to its co-founder.
Still, it’s a start and to be fair there were plenty of skeptics about Hawkins and Icahn–see Sam Forgione’s excellent profile on Hawkins and our take on Icahn’s early public flirtation with Chesapeake.
What’s disturbing, however, is just how quiet most public pensions that own shares in Chesapeake have been ever since the controversy over McClendon erupted in mid-April. Many public pensions we have reached out to over the past few weeks either haven’t commented or simply didn’t return requests for comment.
Much the same thing happened after Monday’s announcement the company was bowing to pressure from Hawkins and Icahn. A spokesman for the New Jersey Investment Council, for instance, took until Tuesday to tell us that the state’s pension officials are generally supportive of some of the recent moves the company has taken to improve corporate governance. Wait a second–isn’t this the state with the governor who has tried to build a reputation for blunt, in-your-face talk? (Full Disclosure: Matt lives in the Garden State).
Public pensions have been just as quiet in discussing the role of EIG Global Energy Partners, which is responsible for roughly $1.3 billion in loans to McClendon. As we’ve reported a good number of pensions are investors in two energy-focused EIG funds that have provided the financing to McClendon.
But so far the pensions we’ve reached out to have been loath to talk about the controversy or voice any opinion on whether it’s appropriate for EIG, which does business with Chesapeake, to also be lending money to it chief executive. EIG, for its part, in an April letter to the pensions and other fund investors, said the loan deals were entirely appropriate.
Yet curiously in that letter, EIG made no mention that just week’s before the controversy erupted, one of its fund had inked a deal to provide up to $450 million in financing to McClendon for another well drilling participation deal. It was Jenn’s crack reporting that smoked that deal out.
Now maybe the pensions are staying quite because they are happy with the way things are at Chesapeake. Or maybe the pension are just waiting to see how things shakeout.
But here’s the thing: regulators and corporate governance folks can talk all they want about new measures to give shareholders more power. But if public pensions stand with their backs against the wall and skip out on the dance, none of that will make much of a difference.