In the annals of corporate perks, Chesapeake Energy made the Top 10 list by allowing co-founder and CEO Aubrey McClendon to buy into 2.5 percent of every well the oil and gas company drilled. Even better, Mr. McClendon paid for the very lucrative perk with personal loans he arranged with companies Chesapeake did business with such as Wells Fargo and Goldman Sachs, an innovative new spin on payola.
The story gets even better. At first, the Company, through its general counsel, said that the Chesapeake board “was fully aware” of the very comfy financing arrangements. But then with the glare of media lights and the scorn of shareholders upon them, the board walked it back and provided a public clarification that it was only “generally aware” of the deals that had Mr. McClendon use his stakes in the Chesapeake wells as collateral. Not sure how close “generally” is to “fully” but it looked to provide some cover.
The parsing of words did not do much to quell the shareholder outrage and today word comes that Chesapeake’s directors have forced Mr. McClendon to step down as Chairman. All this comes after shareholder outrage last year forced the board to rejig Mr. McClendon’s compensation to make it performance-based, a concept that seemingly took some time to reach the old-boy and one-girl board in Oklahoma.
Chesapeake, which calls itself “America’s Champion of Natural Gas” on its website homepage, touts “Bold Moves, Big Future” but unfortunately, Mr. McClendon’s bold moves for his personal gain combined with rock-bottom natural gas prices have smacked the Company’s stock price and made many question the oversight and independence of its board. The board of directors’ influence on a corporation’s reputation is probably greater now than it ever has been and missteps can counteract even the best corporate responsibility programs.
Directors need to be not only on top of all that goes on in the companies they serve but also the reputational impact of what they do and what they say. New regulations on things like “say on pay” (as Citigroup recently found out) are just part of the brighter spotlight and great scrutiny on boards. Communications expertise and issues/crisis management counsel must no longer stop at the executive suite. Smart boards, when faced with situations like Chesapeake, need to examine closely not only their words, but the optics, because it all plays out from share price to corporate standing to the bottom line.