* Armstrong wants yearly board votes at Chesapeake
* Armstrong gains NY state backing for June vote
* Chesapeake argues for status quo under new state law
By Ross Kerber
May 11 One of the earliest critics of Chesapeake
Energy Corp is a 70-year-old Denver investor with no
patience for e-mail.
Armed instead with just a telephone and a fax machine, Gerald
Armstrong pushed for corporate governance changes at the
Oklahoma energy company long before the recent attention on the
oversight of its founder and Chief Executive Officer, Aubrey
In 2008 and 2009, Armstrong convinced a majority of
Chesapeake shareholders to back proposals for annual elections
of directors, something he said would make them more
After those votes, Oklahoma adopted a law that effectively
undermined his victories. Now, Armstrong is at it again, asking
company stockholders to approve in June a measure to
reincorporate Chesapeake in Delaware, which would render the
Oklahoma law irrelevant.
Armstrong expects that the measure to reincorporate
Chesapeake in Delaware will gain favor with big institutional
investors in light of the current furor following Reuters
reports revealing McClendon has taken out loans worth $1.5
billion to fund his participation in a Chesapeake well drilling
"Aubrey McClendon is not walking on water," Armstrong said.
One supporter of changing where Chesapeake is incorporated is
New York State Comptroller Thomas DiNapoli, who oversees about
$140 billion in state pension funds, a spokesman said.
Armstrong hopes other big investors will follow suit and the
influential Council of Institutional Investors mentioned the
proposal favorably in a recent newsletter.
Asked about Armstrong and the push to reincorporate
Chesapeake in Delaware, a Chesapeake spokesman referred to
language in the company's proxy. In that regulatory filing,
Chesapeake argued there are business advantages for the natural
gas company if it remains incorporated in Oklahoma and that its
current structure has its own governance benefits such as making
it easier to defend against a hostile takeover bid.
Armstrong is part of a loose network of independent
shareholder activists who file scores of proxy measures every
year. Many of these proposals are not adopted, but over time the
measures can send a message.
Research firm FactSet SharkRepellent found that Armstrong
filed 66 shareholders proposals in 2010 and 27 in 2011. In both
years, his proposals on average received about 52 percent
support among the votes cast.
Armstrong speaks with an emphasis on detail that shows his
background in business as president of a Colorado land company
from 1973 to 2006. Since he often targets smaller companies, he
is not as well-known as other sha reholder activists suc h as
Evelyn Davis. Also working against his notoriety is the dislike
he developed for e-mail when he tried it.
"I got so much junk!" he says.
Armstrong owns 900 shares of Chesapeake. He says he started
buying the shares in 2005, when they cost around $30 per share,
and he thought they were poised to rise. That happened for a
while, but now they are trading around $17.
"It looks like a diminishing return at this point," he said.
Chesapeake makes up less than 1 percent of his total
portfolio, which is concentrated on smaller companies.
Unlike so-called "socially responsible investors," Armstrong
says he only buys stocks he thinks are good investments and only
gets involved in proxy efforts when changes seem necessary.
Often, Armstrong does not travel to shareholder meetings, but
enlists others to speak for his proposals.
Armstrong says he only wants to improve the way companies
"I'm not a troublemaker," he says. Company managements
"make the trouble."