Whether you're talking about a giant corporation like ExxonMobil (NYSE:XOM) or a smaller oil and gas company like Kodiak Oil & Gas (NYSE:KOG), management's role deserves serious scrutiny. If the recent examples of Chesapeake Energy (NYSE:CHK) and SandRidge Energy (NYSE:SD) are any indication, management can often make or break a company.
They're the people who are supposed to look out for the best interests of the shareholders and the company. They play a crucial role in determining things like the company's strategic direction, how it allocates capital, and its culture. Take ExxonMobil for instance. In the aftermath of the 1989 Exxon Valdez oil spill, the company's management decided to focus resolutely on safety and risk management.
To do so, it instituted what it calls its operations integrity management system (OIMS), a framework for addressing safety, security, health, environmental, and social risk management that has been in place since 1992. To this day, OIMS continues to be a cornerstone of ExxonMobil's approach to management.
Of course, the way ExxonMobil is managed and the way a smaller energy company like Kodiak is managed are probably going to be drastically different. With smaller, younger firms there is less precedent to guide decisions and management often has to be quick and nimble, which frequently requires coming up with ad hoc solutions.
In any case, one of the best resources to determine management effectiveness is a company's proxy statement, which is usually released several weeks after the company's 10-K is released. The statement, which is technically referred to as the DEF 14A, can be found on the SEC website.
When going through the proxy, a few things to dig into deeper are the composition of the board of directors, upper management's experience and tenure with the company, levels of insider ownership, how executive compensation is determined, and whether or not there are incentives for management to avoid excessive risk-taking.
To explore some of these factors as they relate to Kodiak's management, as well as numerous other crucial factors affecting the company's future, I created a premium research report on Kodiak. Hopefully, the report should help investors get a better picture of the company's future. It includes opportunities, major risks, crucial areas to watch, and a closer look at the company's management.
The following is an excerpt from the report that assesses the company's management team. It's just a sample of one section, but I hope you find it useful.
Kodiak's tremendous growth has come under the watchful eye of CEO Lynn Peterson, an oil and gas industry veteran with over 30 years of experience. Mr. Peterson has served as the company's director since November 2001, president and CEO since July 2002, and chairman of the board since June 2011.
Thus far, Peterson has proved his mettle in successfully formulating and implementing the strategic initiatives discussed above. As CEO, he is closely involved with the company's day-to-day operations.
The company's board currently consists of five directors who serve one-year terms until successors are determined at the company's annual meeting. Executive compensation, determined by an independent compensation committee, is designed to incent executives to focus on the company's long-term success, align their interests with the company's shareholders, and deter excessive risk-taking. A large percentage of executive compensation is tied to company performance. Just a quarter of total executive compensation was in the form of a fixed salary, while the remainder was at-risk, variable pay based on company performance.
The compensation committee's decisions as they relate to executive compensation thus far appear fair and reflective of performance. For instance, Peterson's annual base salary for 2012 was increased 25% due to the committee's determination that his efforts were pivotal in guiding Kodiak's recent growth and success. On the other hand, EVP of Business Development James Catlin's base salary for 2012 was reduced on account of his expressed desire to reduce the amount of time he devotes to the company.
Executive bonuses are subject to company performance relative to peer group performance, and determined by three key metrics: adjusted EBITDA, which holds a 25% weighting, and sales volume and proved reserves, both of which hold a 37.5% weighting.
Lastly, the level of insider ownership isn't particularly high, though it is not low enough to cause concern. Board members and key executives own roughly 2.3% of current outstanding shares, with Peterson accounting for 1.39%.
Interested in other opportunities and risks facing Kodiak?
That was just a sample of our new premium report on Kodiak Oil & Gas. If you're debating whether the company is a buy or sell, the report may prove to be a crucial resource. In addition to an analysis of Kodiak's risks, areas to watch, and management, the report comes with complementary updates and delves into upside and downside catalysts looming on the horizon. To get started, simply click here now.
Fool contributor Arjun Sreekumar has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and short JAN 2014 $15.00 puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.