A truly amazing letter by the Chesapeake Energy (NYSE:CHK) general counsel ("GC") is making the rounds among investors concerned with public companies' corporate governance practices. While we have not followed CHK's corporate actions to date, the above-linked letter caught our attention.
In the letter, CHK's GC attempts to justify paying a $75 million bonus to CEO Aubrey McClendon in 2008, a year in which Chesapeake's stock price declined by an impressive 59%. Mr. McClendon's total compensation during such a notable year? 100 million sixty-nine thousand two hundred and one U.S. dollars (see it for yourself in CHK's proxy statement).
As if the compensation issue was not sufficient, the GC felt it necessary to justify another use of corporate funds as follows:
In December 2008, the Company purchased an extensive collection of antique historical maps of the American Southwest from [CEO] Aubrey [McClendon] for $12.1 million, which represented his cost. The collection includes over 500 museum quality pieces. A dealer who had assisted Aubrey in acquiring this collection over a period of six years advised the Company that the replacement value of the collection in December 2008 exceeded the purchase price by more than $8 million. The maps have been displayed at the Company's Oklahoma City headquarters for a number of years, during which the Company has been insuring the maps in exchange for their display.
We are relieved that they bought "museum quality" pieces. Anything less would have been a waste of shareholder funds.
Least but not last, the GC explains another use of corporate funds as follows:
In 2008, the Company paid Deep Fork Catering approximately $177,000 for food and beverage catering services, primarily for two large events sponsored by the Company. Deep Fork Catering is an affiliate of the Deep Fork Grill, an Oklahoma City restaurant in which [CEO] Aubrey [McClendon] is a 49.7% owner. Aubrey is not involved in decisions to hire Deep Fork Catering and has requested that the Company’s future use of Deep Fork Catering be limited.
How could anyone think that McClendon might be "involved" in hiring his own catering company? Don't these ignorant shareholders know that there are only a handful of catering companies around in Oklahoma City? Besides, isn't it reassuring that McClendon wants future hirings to be "limited"? They will surely not exceed CHK's cash balance and borrowing capacity, so what's the big deal?
Last but not least, the GC indulges shareholders with another wholly unnecessary explanation of a surely optimal use of shareholder funds:
In 2008, the Company became a founding sponsor of the Oklahoma City Thunder, a National Basketball Association franchise owned and operated by The Professional Basketball Club, LLC ("PBC"). [CEO] Aubrey [McClendon] has a 19.2% equity interest in and is a non-management member of the PBC. The Company paid $3.5 million in 2008 and $1.2 million in 2009 pursuant to its sponsorship agreement for the Thunder’s 2008-2009 season. As a founding sponsor, the Company received valuable television and radio advertising for local broadcasts of Thunder games, arena advertising space, advertising in game-day programs and on the team website, team participation in a Company-sponsored community event, game tickets and use of an arena suite. Our sponsorship level is consistent with that of other major employers in Oklahoma City, some of which also have ownership ties to the franchise. In addition to the advertising and promotional activities related to its sponsorship of the Thunder, the Company believes the sponsorship provides valuable support to the local community and contributes to employee morale.
We don't doubt for a second that it contributes to the morale of at least one employee. Go Aubrey!
Disclosure: No position (you seem surprised)