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A conversation with Archie Dunham: New chairman is confident in the future of Chesapeake

by Adam Wilmoth Published: June 27, 2012

© Copyright 2012, The Oklahoman

Just days on the job, Chesapeake Energy Corp.'s new chairman said he sees no reason why Chesapeake would leave Oklahoma City and praised CEO Aubrey McClendon as a “brilliant explorer, entrepreneur and risk-taker.”

“Chesapeake is a U.S.-based midsized energy company. Its focus is in the Lower 48 states, and its employees travel domestically primarily. Therefore, I see no reason why the company's headquarters should be anywhere other than in Oklahoma City,” Archie Dunham said.

Three days after the former ConocoPhillips chairman was named Chesapeake's chairman, he praised the new board for its independence and makeup, saying current and former CEOs make the strongest directors.

“CEOs are willing to stand up to other CEOs and say, ‘We've heard your presentation, but we don't quite agree with that direction, so maybe you need to go back and redo it,'” Dunham said Sunday afternoon in an interview with The Oklahoman.

Dunham, 73, retired as chairman at ConocoPhillips Corp. in 2004 after a 38-year career at the Houston-based energy company and its predecessors, including then-Ponca City-based Conoco Inc. Under Dunham's watch, Conoco Inc. completed what was then the world's largest initial public offering and grew into the third-largest company in the United States, with operations in 55 countries.

Besides his general corporate experience, Dunham brings with him 27 years of experience on some of the largest and most influential boards in the country.

“The primary job of a board of directors is to keep the company from strategically and financially taking a hit below the water line,” he said.

Houston-based Enron Corp. was led by a strong CEO, but it fell into trouble because of a weak board, Dunham said.

“The Enron board had a lot of attorneys and university presidents and people who were beholden to the philanthropy of the board. In that situation, I think you have a weak board,” Dunham said. “If you have a weak board, you're going to make major strategic blunders, and sooner or later, you're going to make a blunder that's a hit below the water line and the company sinks.”

Dunham is a Houston resident and also is building a home in California. He will not be moving to Oklahoma, but he does expect his new role to keep him involved with Oklahoma City.

“I'm sure initially, the next 90 days, I'll be spending more time here than I would want,” Dunham said. “But I would hope that after three or four months that it will settle down to a day or two a month, which is the time requirement of most non-executive chairmen in major companies today.”

Chesapeake's directors took little time before settling on Dunham as the new chairman.

Then-nominating committee chairman and former Gov. Frank Keating contacted Dunham on May 27, about a month after the company announced that McClendon would give up the title. Keating asked if Dunham would be willing to meet lead independent director Pete Miller. He agreed to talk, and Miller called five minutes later to arrange a meeting.

Dunham met McClendon for the first time on June 6, the day of the Game 6 matchup between the Thunder and Spurs. He attended the game with his friend and former colleague Mike Stice, Chesapeake's senior vice president of natural gas projects and CEO of subsidiary Chesapeake Midstream Partners.

“A lot of people saw us on television because I sat on the first row,” Dunham said. “So I started getting all these emails from people asking me if I was going to be the next chairman? I said, ‘I'm just here with Mike Stice.'”

Despite nearly four decades in the energy industry, Dunham has had little contact with McClendon and the new directors he will serve with at Chesapeake.

Before agreeing to become Chesapeake's chairman, Dunham reached two conclusions about the company, based on his own research.

“Aubrey is an exceptional, brilliant explorer, entrepreneur and risk-taker. He's done a great job of building a company and creating and capturing high-quality assets,” Dunham said. “No. 2, the company is in trouble, reputationally, with a lot of investigations and apparent ethics problems.”

Chesapeake is under investigation by the Securities and Exchange Commission and faces at least 17 shareholder lawsuits after it was revealed in April that McClendon used his personal stake in Chesapeake wells as collateral for up to $1.5 billion in personal loans.

Further revelations showed that McClendon personally was involved in a hedge fund that traded in commodities, including natural gas. On Monday, Reuters reported on possible collusion with Canada's Encana Corp. on land auctions in Michigan.

A man of many titles

Through his experience as a director, a chairman and a CEO, Dunham said he has gained insight into the proper responsibilities of each position and that it is essential for the role of each to be clearly defined and followed.

In his latest role, Dunham heads up the newly constructed Chesapeake board, which now has five independent representatives appointed by the company's two largest shareholders: Southeastern Asset Management and activist Carl Icahn.

Dunham will work closely with McClendon, who until last week also carried the title of chairman.

“I think the hardest role that I ever had was being executive chairman after having been chairman, president and CEO,” he said. “In many respects, that has to be the same kind of discomfort that Aubrey will have. He's on the other side of that. Instead of being chairman, president and CEO, now he's president and CEO. It takes a while to get used to those new responsibilities because you have to let go.”

The change could be especially challenging because McClendon is such a public figure for the company.

“I think that happens anytime a founder successfully creates a major company,” Dunham said. “When the company is highly successful, that's what always happens. I don't see that as an issue or a problem as long as the CEO recognizes that as the company becomes a publicly owned company, they have to remember that they're working for the shareholders.”

While McClendon will have to adjust to being only CEO, Dunham said it also is important that as chairman, he does not overstep his role.

“You have to be very careful, especially when you're the chairman, to not be the CEO,” he said. “I've told Aubrey I have absolutely no interest in being CEO of Chesapeake. I've been a CEO. I love the job. But that's not what I wish to do going forward.”

The new board — and Dunham in particular — will be faced with the responsibility of overseeing McClendon's work.

“It's going to be a hard job,” Dunham said. “Aubrey is a brilliant and very successful CEO. It's going to be hard for him to no longer be chairman, president and CEO. But I feel confident that the two of us can work together and that Aubrey recognizes that a strong board is really a tremendous asset for the CEO not only in the long term, but also in the short term.”

The relationship between the CEO and a strong board is essential to the success of any company, Dunham said, pointing out that the CEO reports to the directors, who are accountable to the shareholders.

“A CEO is a fool, in my opinion, if he doesn't rely on the judgment and experience of a board,” he said. “We'll learn how to work together. I feel absolutely confident that Aubrey and I can work together and make this a success.”

While the board is responsible for oversight, the CEO's primary role is to establish the rules and expectations for the company, Dunham said.

“The job of the CEO and the senior management principally is to set the tone at the top and to create a culture of absolute perfect ethics and perfect integrity, focus on safety and focus on environmental excellence,” Dunham said.

That culture must continually be communicated throughout the company, Dunham said.

“Everybody must understand what the value system is, what the culture is and what the consequences are if you violate that culture,” he said.

Dunham, who had not met McClendon before he was approached to become chairman, reflected on his impressions of the CEO since meeting him.

“I was impressed with his enthusiasm, his vigor, his desire to work effectively with me, and his love of Chesapeake, his love for Oklahoma and Oklahoma City,” Dunham said. “I think he wants this to be a success. That's why I'm so confident that we can make this work.”

On-the-job training

Dunham acknowledges he still has a lot to learn about Chesapeake. His unfamiliarity with the company was an important consideration in his selection, as Chesapeake's previous board set out to find an independent chairman with no previous ties to the embattled oil and natural gas company.

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by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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