Look, if you can’t grasp the conflicts of interest inherent in the CEO of a company being personally in hock to a major investor in the company for a billion dollars, leveraging company assets the company has given him, you’re not even trying. This in a notoriously boom and bust industry and with an executive who crashed the company stock in 2008 when he got caught overlevered and had to sell almost all of his considerable pile of Chesapeake stock. The Chesapeake board rewarded him a couple of months later with a $75 million bonus and a sweetheart deal to buy his antique maps for $12 million, so you can imagine what kind of oversight it offers.
Here’s how Reuters, without directly saying so, gets to the worst-case implications these kind of ill-disclosed transactions brings to mind:
In the past, major Wall Street banks formed separate companies - or special purpose vehicles, just as McClendon has - to allow select employees to borrow from the employer and make investments. The WorldCom accounting scandal was, in part, fueled by more than $1 billion in loans taken out by former chief executive Bernard Ebbers that were secured by his shares of company stock. And energy giant Enron used off-balance-sheet entities to hide debt from investors.
If I’ve got a quibble with the piece, it’s with how it’s set up. When you’ve got a really good investigation, you should give be able to come up with a better lede than this:
Aubrey K. McClendon is one of the most successful energy entrepreneurs of recent decades. But he hasn’t always proved popular with shareholders of the company he co-founded, Chesapeake Energy Corp., the second-largest natural gas producer in the United States.
Contrast that with the lede of the Journal’s follow today, which gets right to the crux of the matter:
Firms controlled by Aubrey McClendon, the high-profile founder and chief executive of Chesapeake Energy Corp., CHK -0.33% were in debt to a private equity group for as much as $1.4 billion while Chesapeake was negotiating with the same firm to sell it hundreds of millions of dollars of assets.
And Reuters doesn’t get to McClendon’s undisclosed dealings with the private-equity investor until the eleventh paragraph of its piece.
Fortunately, it didn’t dampen the impact of this story, which overall is just excellent.