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SEC steps in to do job Chesapeake board should have

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The U.S. Securities and Exchange Commission is going where the Chesapeake board feared to tread. The watchdog has launched an investigation into the gas company's disgraced chief executive officer, Aubrey McClendon. Shareholders suing the company will welcome the news. But Chesapeake's directors should have set up a more impartial inquiry themselves. That oversight could prove costly.

A Reuters investigation last April revealed that Mr. McClendon had borrowed more than $1-billion from one of the company's business partners. That was soon followed by revelations of other questionable practices – Mr. McLendon, for example, ran a private hedge fund from his office in the very commodities Chesapeake produced.

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The company's own investigation, which exonerated Mr. McClendon in February, was tainted. Although Chesapeake hired law firm Locke Lord Bissell & Liddell to conduct the probe, the effort was overseen by director Burns Hargis.

As head of Chesapeake's audit committee since September, 2008, he should have stopped such conflicts in the first place. Mr. Hargis is also president of Oklahoma State University, the recipient of a $2-million donation from Chesapeake in 2011. Shareholders are in no position to hold him accountable for any lack of rigour. He was voted off the board in last June's investor revolt led by investors Carl Icahn and Southeastern Asset Management, though he was kept on as a director to complete the investigation.

Mr. McClendon's conflicts were pretty blatant. So the SEC is right to dig deeper. If the regulator finds anything amiss, it will be profoundly embarrassing for the board, not least because five of its nine members were brought in to appease shareholders after last summer's outcry – including a new chairman.

They appear to have taken a softly, softly approach, though. Not only did they sign off on Mr. Hargis's conclusions, board members also agreed to pay the departing chief a $47-million exit package, even though they could have avoided shelling out that much.

Any malfeasance uncovered by the SEC would also make life easier for investors who are suing Chesapeake over Mr. McLendon's golden parachute, among other suits. Perhaps the board wanted to get the boss out with minimal fuss. But a more diligent effort to protect shareholder interests might have worked better in drawing a line under the Mr. McClendon era.

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