There is a common belief among the public that chief executive officers of public companies get hundreds of millions of dollars, even when their results are not good. While that is an extreme rather than a norm, there are many instances where CEOs get way too much money. Chesapeake Energy Corp. (NYSE: CHK) has been a battered company due to its corporate governance and financial dealings with CEO Aubrey McClendon. On Tuesday evening, news surfaced that McClendon is retiring as CEO. Make no mistake. This was an alternative to a firing, and McClendon’s package to walk away leaves him more than wealthy.
We cannot formally call Aubrey McClendon’s departure a firing. The company is calling it a retirement. We will not bother you with the financial dealings and news that took place in 2012, but it is no coincidence at all that we named Mr. McClendon as one of 10 CEOs that need to be fired this year. The company even set this effective date for retirement on April 1, 2013. That’s right: APRIL FOOLS DAY!
Aubrey’s walkaway package is now said to be $45 million. McClendon already has become wealthy, even if he got inverted in Chesapeake stock before. It does deserve to be noted that McClendon is at least the co-founder of Chesapeake. His fortunes have risen and eroded along with the price of Chesapeake stock. McClendon is only 53 years old and he has been CEO since Chesapeake’s inception in 1989. He also had served as chairman of the board from its founding until 2012, but the personal “well participation” financial ties forced Chesapeake to oust McClendon from having both the chairman and CEO role.
McClendon would have been fired in mid-2012 had this been any other company. The problem is that as a founder, and having the CEO and chairman role, he was in total control of Chesapeake. The board of directors was considered a board of puppets, until the financial news forced Chesapeake to go get more outside directors. The problem is that he was not one of the many CEOs who are merely temporary corporate guardians who follow a long line of men (or women) who predated them. That makes it harder for a company to fire a leader.
The management statement from Chairman Archie W. Dunham says it all:
Over the past 24 years, Aubrey McClendon has created one of the most valuable and innovative companies in the energy industry. Under Aubrey’s strong leadership, Chesapeake has built an unmatched portfolio of natural gas and oil assets in creating one of the world’s leading energy companies. He has been a pioneer in the development of unconventional resources, and he has also been a leader in the effort to make the United States energy independent. However, as the company moves towards more fully developing the value of its outstanding assets, Chesapeake is at an important transition in its history and Aubrey and the Board of Directors have agreed that the time has come for the company to select a new leader. The Board will be working collaboratively with Aubrey to make a smooth transition to Chesapeake’s next Chief Executive Officer.
In short, “we both agreed it is time for a new leader …” That is a polite firing.
McClendon’s retirement statement even included, “While I have certain philosophical differences with the new Board, I look forward to working collaboratively with the company and the Board to provide a smooth transition to new leadership for the company.”
“Certain philosophical differences …” Is that a real retirement? At 53, McClendon is too young to be able to say he just wants to go feed pigeons from a park bench.
The other good news for shareholders is that McClendon’s exit does not look like it will be followed by a financial implosion of sorts. The statement said:
The Board’s extensive review to date has not revealed improper conduct by Mr. McClendon. The Board and Mr. McClendon’s decision to commence a search for a new leader is not related to the Board’s pending review of his financing arrangements and other matters.
The good news for shareholders is that Chesapeake will now truly be an independent company, at least for the most part. McClendon will still have a well participation plan, unless that can be thrown out. The company said:
Mr. McClendon will resign from the Board of Directors at the time his successor is appointed and will receive his full compensation and other benefits to which he is entitled in accordance with the terms of his employment agreement. Mr. McClendon will continue to be an important partner with the company given his stock ownership as well as his interests in certain of the company’s wells in connection with the Founder Well Participation Program, which will terminate on June 30, 2014.
So, back to this $45 million exit package. CNBC’s Kate Kelly reported on Wednesday that the Heidrick & Struggles new CEO search is well underway and includes internal and external candidates. She reported that this likely will be considered a termination without cause. She reported that the $45 million is a base salary of about $1 million for four years, a $1.95 million bonus and about 1.5 million shares valued at $20 per share, which will vest immediately upon his exit. McClendon also will reportedly get fractional jet use rights and other perks that come to about $2 million.
If you have followed Chesapeake for long, this looks and smells like an outrageous package. Chesapeake has not fully recovered from the 2012 McClendon debacle. There was an “Aubrey Discount” in the shares, and that is why you are seeing a gain of about 6% in mid-day trading. At $20.10, this is still well under prior highs as the 52-week range is $13.32 to $26.09.
Is it possible that we and others have been too hard on McClendon? Perhaps. The problem is the double-dipping and how the company handled things last year. While McClendon leaves under a cloud as far as investors are concerned, he does at least get good marks from other Chesapeake workers. Glassdoor.com shows a very positive review that 74% of employees would recommend this company to a friend and 80% approve of McClendon as CEO.
When a stock rises upon a CEO retirement or resignation, Wall St. and Main Street are smart enough to know what a firing is. Still, $45 million as a walking away package? Maybe the only saving grace here is that Chesapeake has a market cap of almost $13 billion as of now and most of the benefits will not really be noticed by any of the shareholders.