CEO Aubrey McClendon, the founder of Cheseapeake Energy Corp, which is publicly traded, had established a “deal” with the Board, giving him a personal ownership stake in each of the company’s wells. News reports indicated the trigger for the Board movement has been the report that the CEO was pledging the interest as collateral for other personal loans.
The company produces natural gas, which is under pressure due to an industry supply glut, and weak financials due to aggressive financing of growth.
The share price has dropped about 24% in the month of April as the story gets more press. There is a large short selling interest. The Board is now interested in the dealings of the CEO and third parties, and presumably in the conflicts between the company’s interests and the CEOs personal interests. The SEC is now rumored to be opening an investigation.
The Board itself issued a statement as recently as April 18 saying there was no conflict of interest. On April 26, the Board changed its position, saying it will investigate conflicts.
Enterprise governance is intricately linked with Risk Governance, and weak or odd governance often leads to odd risk taking behaviors. The impact is clear:
- The Board is changing its position and exploring conflicts
- The SEC is interested
- The reputation is damaged
- Share price is tumbling with more likely to come based on the “short interest".
Whatever happens next, the company’s most senior efforts are going to be focused on this issue, and not steering the company through a supply glut and its well expansion (or other) program.