Market Overview

Chesapeake CEO McClendon Loses Position as Chairman; Southeastern Could Seek Involvement


Chesapeake Energy (NYSE: CHK) is raising questions from investors after revoking CEO Aubrey McClendon's chairman status yesterday .

McClendon entered the spotlight for borrowing, according to The Wall Street Journal, $1.4 Billion using his stake in Chesapeake wells as collateral. He also owned part of a hedge fund, Heritage Management Company, which traded some of the same commodities that comprise Chesapeake's core businesses.

This questionable financial activity is of concern for Chesapeake shareholders for its potential to create conflicts of interest. By trading the same commodities as Chesapeake, McClendon could have been in a position where his own interests diverged from that of Chesapeake.

McClendon could have, for instance, purchased commodities with Heritage directly prior to a purchase by Chesapeake. This would allow him to profit from prices increases caused by Chesapeake commodity purchases. A situation could have also arisen where McClendon's exposure to a particular commodity caused him to be biased, and influence Chesapeake to induce suboptimal commodity purchases or sales. Shareholders may also be concerned that, by running Heritage, McClendon's attention was diverted from his duties as Chairman and CEO.

Chesapeake's largest minority shareholder, Southeastern Asset Management, has made SEC filings suggesting it may act to resolve these issues. Recent events surrounding McClendon might make investors wonder if there are any other issues with Chesapeake's corporate governance. If recently uncovered issues passed under the radar, could a more systemic problem exist within Chesapeake's management structure?

Posted-In: Earnings News Hedge Funds Movers & Shakers Commodities Management Markets Trading Ideas


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