When a company issues a release at 4:55 p.m. on Good Friday, it’s not good news.
That’s the timing Chesapeake Energy chose to tell investors it hasn’t found the chief executive for which it’s been searching since January.
The board, concerned about ongoing financial controversies at the Oklahoma City company, forced co-founder Aubrey McClendon to give up his chairmanship last year. Three months ago, it pushed him out completely. His last day was Monday. The company is a major player in natural gas exploration of the Utica shale formation in Ohio.
Chesapeake’s board faces the daunting task of filling the CEO job as many other energy companies are also in the hunt for top talent. Meanwhile, the real winner might be McClendon, who’s likely to have his choice of options for a second act.
Unable to find a replacement to run the country’s second-largest natural gas producer after Exxon Mobil Corp., Chesapeake’s directors said they would establish an “office of the chairman,” comprising nonexecutive Chairman Archie Dunham, chief financial officer Domenic Dell’Osso and acting chief executive Steven Dixon.
“If they couldn’t find the CEO they’re looking for, it’s not a bad option,” said William Arnold, a professor of energy management at Rice University. “It’s not optimal by any means.”
The stopgap measure wasn’t what investors wanted to see, and Dixon isn’t the new blood the company needs. He’s been part of McClendon’s inner circle since joining Chesapeake more than 20 years ago, and he was there during the questionable business practices that have gotten the company in trouble with shareholders and regulators during the past year.
Granted, Dixon won’t be making decisions by himself. He’ll have the experienced hand of Dunham, the Houston-based former ConocoPhillips chief executive, to guide him, but the three-way leadership cluster isn’t a recipe for confidence.
“You’ve got to have a CEO who’s really running the show,” Arnold said.
Chesapeake’s board faces a dual challenge in replacing McClendon. First, an unprecedented number of exploration companies are looking for top talent.
Houston-based Marathon Oil Corp., for example, is said to be looking for a successor for Clarence Cazalot, who’s 62. His heir apparent, David Roberts, unexpectedly resigned in December. A Marathon spokesman said the company has not commented on any executive search, although in a February conference call, Cazalot said succession planning was a “critical priority.”
Others in the hunt for CEOs include Occidental Petroleum, Bill Barrett, Samson and Encana, as well as a number of smaller companies.
The pool of candidates is relatively small, and most replacements are likely to come from the secondary executive ranks of larger companies. For Chesapeake, though, it needs a big name that exudes experience.
The best example, Anadarko’s outgoing chairman, James Hackett, took himself out of the running recently by announcing he plans to enroll in Harvard Divinity School.
Making things more difficult for Chesapeake, taking over for McClendon isn’t a plum assignment. Chesapeake has great assets, but it’s struggling under the heavy debt McClendon built up acquiring them. With much of its properties producing natural gas, the rebound in prices can’t come soon enough.
The new Chesapeake CEO also steps into a company under investigation by the SEC for grants it made to McClendon that let him personally participate in every well it drilled. Yet, as Arnold pointed out, the company doesn’t need a turnaround specialist — who might revel in such challenges — because its restructuring has been under way for almost a year.
Things may be much easier for McClendon. His failings at Chesapeake — running the company as his private financial playground — won’t keep him from the Promised Land of ousted CEOs, that is, private equity.
McClendon hasn’t announced his plans, but a lot of hedge funds would love to have a wheeler-dealer like him. After all, fallen top executives at BP, John Browne and Tony Hayward, have both sought redemption in private equity.
Shareholders may be glad to have McClendon gone, but given the delay in replacing him, he’s likely to find prosperity before they’re finished cleaning up the mess he left behind.