Who’s Pulling the Strings at Chesapeake Energy?

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Chesapeake Energy (NYSE: CHK) might be the nation’s second largest natural gas producer; however, the company has been known more for their boardroom drama this past year.  With shares having been cut in half over the past five years, investors have had reason to be upset.  A lot of that angst has been directed toward its CEO who also happens to be in the running for Worst CEO of the Year

While the role of the CEO is vital for any company, investors tend to miss that even the boss has a boss.  While in the literal sense that’s the shareholders, more directly it’s the board of directors who wield the real power. Even if you do take the time to vote your proxy each year, odds are you’ve never actually read the bios of those you’ve voted in to run the company.  Have you ever considered whether they bring the right blend of skills and experience to the company?

Chesapeake’s board consists of nine members.  Just knowing who they are and where they came from is an important first step.  Below is a brief listing of board members with very abridged bios.  We can gain some vital insights as to how they might be running Chesapeake just by knowing a little bit about each director.

Archie DunhamDirector since June 2012.  Mr. Dunham is formerly the Chairman, President and CEO of ConocoPhillips.  He also serves on the board at Union Pacific and Louisiana-Pacific and has served on major corporate boards for nearly 30 years.   

Bob Alexander – Director since June 2012.  Mr. Alexander founded Alexander Energy which he sold to National Energy Group.  Two years after the sale he became that company’s CEO until it was sold nearly a decade later.  He currently serves on the board of two other energy companies. 

V. Burns Hargis – Director since September 2008.  Mr. Hargis has been the president of Oklahoma State University since March of 2008.  He is currently a director and formerly the Vice Chairman at BOK Financial.   

Vincent IntrieriDirector since June 2012.  Mr. Intrieri is employed by entities of Carl Icahn.  He’s severed on several boards including National Energy Group and is currently the board chair at the private PSC Metals. 

R. Brad Martin –Director since June 2012.  Mr. Martin was formally the Chairman and CEO of Saks.  He’s currently on the board of FedEx, First Horizon and Dillards with previous board experience at several consumer facing companies. 

Aubrey McClendonhas served as CEO since co-founding the company in 1989.

Merrill A. “Pete” Miller, Jr.Director since January 2007.  Mr. Miller is the Chairman, President and CEO of National Oilwell Varco

Frederic PosesDirector since June 2012.  Mr. Poses is currently the CEO of a privately held materials company.  He’s the former CEO of Trane and has been on several corporate boards.

Louis Simpson – Director since June 2011.  Mr. Simpson was formerly the President and CEO of Berkshire Hathaway subsidiary GEICO. 

The Good

As I previously hinted, Chesapeake endured its share of boardroom drama this year, and as you might have noticed, the company added several new faces to its board this past June.  The reconstituted board saw CEO Aubrey McClendon relinquish his role as Chairman with former ConocoPhillips Chairman Archie Dunham taking over as an independent non-executive chairman.   

Much of the agitation was brought on by investors who decided it was time to make a change.  The company’s top two shareholders, Southeastern Asset Management (SAM) and Carl Icahn proposed a slate of four candidates with Bob Alexander, Brad Martin and Frederic Poses being nominated by SAM and Vincent Intrieri nominated by Carl Icahn. 

Other than the board shake up, investors should note that it’s filled with oilmen.  Three of the nine have experience running an E&P company while a fourth runs a top industry supplier.  Despite rightfully being heavily weighted to those with industry experience, the board does have balance beyond that with a university president, a retailer and a former top lieutenant of Warren Buffett.  They balance the industry knowledge of their fellow directors with broad business experience.

The Bad

While the board does have some industry diversity, the board still isn’t one I’d consider diverse.  I mentioned that the board was filled with oil men for a reason.  There isn’t one woman (or minority) on the board. 

The other negative I’d point out is that the new board members were appointed by activist investors and might not have the best interests of the average investor.  Icahn’s profitably agitated for change before and is now back for more.  He does have a rather spotty record, so it remains to be seen if having him around will turn out to be good for the average investor.   

The Bottom Line

Digging deeper into a company’s board can prove invaluable.  The Chesapeake that has underperformed the market by more than 36% this year isn’t the same company.  The reconstituted board is filled with members who are there to provide accountability and strong oversight in order to create the substantial shareholder value investors demand.  While it’s not a perfect board, it’s hopefully a step in the right direction for the company. 

latimerburned owns shares of ConocoPhillips and has the following options: Berkshire Hathaway. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Berkshire Hathaway and National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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