The Chesapeake Board – case study of an ineffectual board

By Jon Masters

As corporate governance consultants, providing counsel to boards on how to be more effective, we are fascinated by what is going on at Chesapeake Energy. 

The current saga has all the elements that suggest an ineffectual board:

  •  Dominant CEO/Chairman
  • Independence compromised by extraordinary high pay and perks.  Approved pay packages for the CEO criticized by shareholders
  • Company fought “pay for performance” until shareholder revolt
  • Situations where the CEO’s personal interest could conflict with the company’s interests
  • Asleep at the switch.  Having set up the conflicts, they failed to monitor them
  • None of the current board members are thought to be capable of taking over as chairman

This is all very reminiscent of Enron’s board waiving the code of ethics and not monitoring the situation.  They are taking action, but shareholders and the public will not let them off the hook no matter what they do now.

The Wall Street Journal’s Joann Lublin asked us what we thought in an interview.  Here is a bit from the April 26 article:

Some governance experts remain critical of Chesapeake board members for not acting sooner. “They went to sleep,” asserted Jon J. Masters, founding principal of Masters-Rudnick & Associates LLC, a governance consultancy in New York. Acting now, he added, “doesn’t get them off the hook.”

As this story unfolds, we’ll see what happens.

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