Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Board of Directors That Just Doesn't Get It

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

It's often difficult to evaluate the quality of a company's management and board of directors. With a lot of intangibles at play, it can be tough to point to specifics that say, "This is how you know the board is great" or "Here's how they're failing."

But then, every so often, a board comes along that makes it so darn easy. Enter Chesapeake Energy (NYSE: CHK  ) .

Amid a tsunami of problems stemming from Chesapeake's charismatic CEO Aubrey McClendon -- everything from outlandish compensation to antique map purchases and a secret hedge fund -- the board has been astonishingly tone deaf. To be sure, the board has made some noise about improving governance practices, but much of it has been the equivalent of putting a tuxedo on a dog. And based on the reaction of many shareholders, few have been fooled into thinking that the hound is suddenly a fancy gent.

But even with all of the complaints about the company's board, you couldn't really ask for a better summary of their failure -- both in enforcing good governance and listening to shareholders -- than one line from the company's 2012 proxy statement.

In response to a raft of shareholder proposals aiming to improve governance at Chesapeake, the board responded with an attack on the value of good corporate governance, trotting out a study that questioned the value of governance changes and writing: "In other words, the study's findings suggest that there is no distinguishing between the long-term market performance of companies that have adopted corporate governance ideals and the long-term market performance of those that have not."

So in the wake of what could only be described as an epic governance failure, the best this board of cronies can manage is, "Yeah, well, we don't think good governance is all it's cracked up to be." New investors and veterans alike, take note -- a terrible board has reared its head and its name is Chesapeake.

What will be interesting to watch from here is whether these bad-news bears are able to weather the storm. Major shareholder Southeastern Asset Management has filed paperwork that could allow it to turn activist. Loud calls for change have also come from massive California pension fund CalPERS and the respective comptrollers of New York City and state. But perhaps most notable is the 7.6% stake that activist investor Carl Icahn took in the company. Along with his investment, he penned a letter that absolutely dressed down Chesapeake's board.

To this point, the board shows no signs of cracking to major shareholder proposals or Icahn's pressure to get board representation. That could make for an interesting scene at the company's annual meeting on June 8.

Follow Chesapeake by adding it to your watchlist.

The Motley Fool owns shares of Chesapeake Energy. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2012, at 2:04 PM, getrichdietrying wrote:

    LOL. Is Carl Icahn an idiot to buy in to a company that he is demanding change at before a change has happened or is in process? I am just a little guy voicing my literally 2cents in the bank opinion. Because even I know when management is this bad than the company is too dangerous to invest in or even work for security of a job.

  • Report this Comment On June 01, 2012, at 2:07 PM, getrichdietrying wrote:

    Oh, forgot to mention the pensioners are going to get screwed when this tanks are the employees of Chesapeake. Enron anyone? You never can tell how it will go but unlike Enron this is now known when you invest with this company you are investing in the current managements track record.

  • Report this Comment On June 02, 2012, at 10:40 AM, rojostyle wrote:

    carl icahn, billionaire investor, getrichordietrying. little guy....

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1900731, ~/Articles/ArticleHandler.aspx, 10/23/2016 9:42:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
CHK $6.68 Down -0.23 -3.33%
Chesapeake Energy CAPS Rating: ***