Putting Real Teeth and Claws Into Corporate Governance: Chesapeake Energy Corporation (CHK)

Page 1 of 2

There’s a little more accountability in the business world now that executive pay cuts are becoming more fashionable, but we’re still in the “cosmetic” phase that hints at real change but ultimately falls short. Corporate boards of directors are still experiencing difficulties summoning the courage to make chief executive officers fully accountable for their job performance and behavior at the helm.

Strong boards — and strong corporate governance policies — are still the exception to the rule. It’s something to remember ahead of proxy season as we investors contemplate our votes. More shareholder voting and activism will hopefully encourage more real accountability — and truly meaningful consequences — when corporate managements fail at doing their jobs responsibly and for the good of their companies, not just themselves.

Chesapeake Energy Corporation (NYSE:CHK)Shareholders get stung by semantics

Last week’s big news about Chesapeake Energy Corporation (NYSE:CHK) CEO Aubrey McClendon’s “retirement” is a perfect case in point. Somebody should have remembered to put real claws in the clawback provisions out there in wildcatting territory.

I put “retirement” in quotes because Chesapeake shareholders face an infuriating outcome after all the indignities they have already suffered. The company has been steeped in controversy due to McClendon’s behavior at the helm, and while his departure is a good sign for better governance, it doesn’t appear he’s truly going to be held responsible for anything as he steps down.

The company’s most recent proxy statement outlined the stipulation that should McClendon “retire” before December 2013, he would be entitled to $0 severance and even face a potential $30 million clawback.

Of course, that did sound too good to be true.

Even though the company’s press release clearly says McClendon “agreed to retire,” the board will treat McClendon’s departure as “termination without cause” and — surprise — that’s a horse of another color. The color green, actually.

According to the same proxy statement, termination without cause entitles McClendon to about $47 million. Clawbacks? None.

Although McClendon recently voluntarily gave up his bonus, we now know that bowing to the pressure to leave his job ensures a handsome payday anyway. This is despite the fact that myriad corporate governance problems at the company over the years — including excessive pay for McClendon — are just the tip of the iceberg. Although the board has found “no wrongdoing” on McClendon’s part at the helm, the company is still being investigated by the SEC.

Although many people are pointing to McClendon’s decision as a Carl Icahn victory given his stake in the company and subsequent board shake-up, McClendon’s cushy “retirement” package isn’t a massive victory for shareholders.

AIG: Always Infinitely Galling
Obviously, we shareholders continue to be aware that if we don’t look out for our own interests, nobody else will, either.

Case in point: Last week, news broke that the U.S. Treasury allowed big pay raises at bailed-out financial companies like American International Group, Inc. (NYSE:AIG), despite its own supposed restrictive pay guidelines for companies that had received government funds. The report from the special inspector general of the Troubled Assets Relief Program alleges that the Treasury fell down on oversight and supervision and deferred to the companies’ pay schemes. Allegedly, these companies weren’t even required to link compensation to performance.

The AIG example is particularly galling, since that company was criticized following the financial crisis for considering giant bonuses appropriate under the circumstances. More recently, the company’s management and former CEO Hank Greenberg had the mind-blowing audacity to consider suing the government over the bailout, even though without it, AIG would have purportedly failed. Apparently there are no stand-up good guys in this scenario, either.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!