Putting lipstick on the pig at Chesapeake…

May 11, 2012

We were going to write about something else this morning, but then Chesapeake Energy (CHK), which as footnoted regulars know is something of a frequent flyer here, decided to file its proxy statement, so we quickly changed plans.

While the company did file a preliminary proxy on April 20, there’s a lot that’s happened since then, including a series of blistering articles led by Reuters reporters Brian Grow and Anna Driver on a whole host of problems at the company that eventually led to the board deciding to separate the Chairman and CEO position as well as a public apology by CEO Aubrey McClendon during the company’s first quarter conference call.

As a result, the proxy that was filed today starts off like this with a letter signed by both McClendon and lead independent director Pete Miller, Jr.:

As you know, the past month has been a challenging time for our company. The enormous scrutiny of Chesapeake has created distraction in the marketplace. On behalf of the Board of Directors, we would like to take this opportunity to emphasize the Board’s continued commitment to serving the interests of our shareholders and improving corporate governance.

Talk about stating the obvious. But wait, there’s more! The letter goes on to talk about the various steps that the board has taken to make it at least appear as if McClendon isn’t calling all of the shots and using the company like a personal piggy bank.

Chesapeake also seems to have invested in a graphic designer to make this year’s proxy a lot prettier than last years‘ version. For example, there’s a graph on pg. 2 that helpfully shows just how underpaid McClendon is in relation to other CEOs at energy companies (as my grandfather used to say, my piles are bleeding for him). Talk about data visualization!

On pg. 5, it’s all about the environment with a pull-out quote that says “Chesapeake is leading the way to American energy independence” (although it’s not clear who is being quoted). Still, how could any shareholder possibly find fault with that? There’s also extensive bios on the directors, complete with smiling color pictures — something that also wasn’t in last year’s version of the proxy.

Unfortunately, there’s only so much a team of graphic artists can really do. Because in the end, the proxy is really a bunch of details that no matter how much you dress up, still deliver some cold-hard facts. Take the director compensation table, for example. Only one of the company’s nine directors made under $500K last year, and that’s only because he retired last June! With only one exception, each of the directors took advantage of access to Chesapeake’s fractionally owned jets, with six directors spending over $150K each! Director Richard Davidson, for example, spent $204K last year on personal use of the jet last year, up 21% over 2010.

We will give Chesapeake credit for providing a lot more details in this year’s proxy on its controversial founder well program. There’s a whole section devoted to the program starting on pg. 14. While the program was mentioned in the 2010 proxy, it didn’t get quite the star treatment.

With all of these changes, we’re reminded of another company that took a similar approach to its proxy statement back in 2011, right around the time it was being called a “Vampire Squid”. That’s right, as Theo footnoted back in April 2011, Goldman Sachs (GS) took a similar approach to its proxy statement and gussied it up that year.

Sometimes, there’s only so much lipstick you can really put on a pig!

Image source: Lipstick on a pig via Shutterstock

Only some fine print is amusing. Most of it’s boring. But when it’s important, you can—t afford to spot it after everyone else. We identify hidden opportunities and red flags that other investors miss, and publish them exclusively via our footnotedPro subscription service for professional investors. Find out what you’re missing in the filings: Email us for more information about footnotedPro, or to inquire about a trial subscription.


Leave a Reply