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Big shareholder shakes up Chesapeake Energy

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Kai Ryssdal: The Marketplace Company of the Day is a firm out of Oklahoma City, Okla., called Chesapeake Energy. It’s one of the stars of the North American oil and gas boom, going from basically nothing 20 years ago to an $11 billion outfit today.

But April was a long hard month for Chesapeake. The share price is down 25 percent since April Fool’s Day, in part because of revelations that the CEO of this oil and gas company was running a hedge fund on the side, trading in — wait for it — oil and gas.

From the Marketplace Sustainability Desk, Scott Tong reports.

Scott Tong: If you take Chesapeake Energy and divide it into eight, one whole slice – 13 percent — belongs to an investment firm: Southeastern Asset Management. Southeastern just declared itself an activist shareholder – to ask more questions about company leadership. Has Chesapeake been forthcoming enough?

Phil Weiss: Sufficiently transparent, historically? No.

Argus Research analyst Phil Weiss.

Weiss: But that’s not surprising to me, because I don’t find their accounting methods and other things they do as transparent as I would like, either.

Big question is CEO Aubrey McClendon’s ties to the board. That board knew of a controversial perk that let McClendon invest personally in company wells. It may have known about his hedge fund trading.

But the board this week ended that perk, and stripped McClendon of his job as chairman. Shareholder Southeastern declared itself “pleased” with the changes.

And Babson College finance professor Michael Goldstein suspects the big investor wants more.

Michael Goldstein: I certainly think they wanted to get the attention of the current board. Not the world’s best analogy but perhaps not dissimilar to the tea party letting the Republican Party know ‘hey we’re an organized subgroup. If you don’t do changes, we’re going to run our own candidates. And we’re going to try to change this.

Duke Law professor James Cox says historically activist investors have improved corporate governance, and stock performance. Especially for companies like Chesapeake.

James Cox: It’s very common to find that companies that have grown very rapidly under the guidance of a strong leader that frequently that leader takes on the aura of the imperial CEO.

Cox sees parallels to founder CEOs at Worldcom and Enron.

In Washington, I’m Scott Tong for Marketplace.

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