Issues related to governance and conflicts of interest surprisingly continue to pop up in the news. Two recent notable examples include Chesapeake Energy Corp. and Dartmouth College.
The Chesapeake case had an alarming number of conflicts of interest in place, including the fact that the firm's CEO, Aubrey McClendon, co-owned and actively invested in a hedge fund which invested in commodities produced by his firm. But before getting too worked up, I'm sure any conflicts were appropriately managed by Chesapeake's board — wouldn't they be?
It was also reported that Mr. McClendon arranged for personal loans from investment firms that just so happened to be providing capital for investments in Chesapeake's subsidiaries. Once again, something the board likely had its eye on — didn't they?
Long story short, Mr. McClendon has been stripped of his responsibilities as chairman and four board members are being replaced. Situations such as the Chesapeake case are stark reminders of the severe consequences of not managing conflicts of interest. It teaches us two important lessons: