What's Buffett Buddy Lou Simpson Doing on Chesapeake's Board?
NEW YORK ( TheStreet) -- Phil Weiss, energy analyst at Argus Research, thought there was something not quite right with Chesapeake Energy (CEO) CEO Aubrey McClendon when he spoke this week at an industry conference, the same day that Reuters reported on the $1.1 billion in personal loans that the outspoken and controversial CEO had taken out and linked to holdings in Chesapeake Energy wells.
"He is usually full of energy and talks about how great his company is, but when he was speaking on Wednesday, there were times that it seemed like he was mumbling. He did not sound like himself at all," Weiss said. "I've seen him live at conferences and at three analyst meetings and then on countless calls, and I've never heard him present like he did this week," Weiss said.
The "self" that Weiss refers to is the smooth-talking CEO, and that fits a red flag checklist put down on paper years ago by value investing giant Phil Fisher to help investors find companies best to avoid. In his book Common Stocks for Uncommon Profits , Fisher made the case that among the biggest red flags with stocks is a highly promotional management team.
Fisher was the qualitative twin to quantitatively focused Benjamin Graham, and both are still revered by the value investors today, from Warren Buffett to Argus Research's Weiss.
There's an interesting link to Buffett in the Chesapeake Energy story, too. One of Buffett's long-time top lieutenants, Lou Simpson, who retired from Berkshire Hathaway (BRK.B) last year to run his own wealth management business, joined the Chesapeake Energy board in June 2011.
It's a long way from the most revered capitalist enterprise in the U.S., revered for its focus on integrity and reputation, to the most vilified company in the energy sector, and a lightning rod for rate governance critics in Chesapeake CEO McClendon.
Weiss said he thought when Simpson joined the Chesapeake Energy board it might have a positive influence on the company. On Friday, Weiss wrote of McClendon's practices that, "the apparent unwillingness of the board to put a stop to at least some of these practices, we believe the best thing for investors would be to replace the board and/or the CEO."
Indeed, what is a corporate executive long synonymous with Buffett's focus on reputation doing on the board of Chesapeake Energy?
It certainly looks good on paper for embattled Chesapeake to say Simpson is on its board. Simpson also has a vested interest in the company's performance, owning 310,000 shares, as of last year's annual meeting filing. However, so far he has likely made more in director fees -- Chesapeake directors made close to $150,000 in 2010, not including stock awards which took one director's compensation in 2010 to $620,000 -- than Simpson has created in shareholder value by bringing about change at Chesapeake.