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CHESAPEAKE ENERGY: Balancing Corporate Philanthropy with Employee Perks

Monday, Feb. 11, 2013

From sponsoring the city's basketball team to funding schools, food banks and art foundations, Chesapeake Energy has played a pivotal role in Oklahoma City's development. Amidst ongoing austerity measures, due to low prices for natural gas and rising drilling costs, Chesapeake announced plans to cut charitable contributions in half, leaving many local nonprofits worried. Meanwhile, construction on a fifth restaurant is underway at the company's headquarters, and newly appointed Chairman Archie Dunham confirmed that the onsite child-care facility, 72,000 square foot gym and company restaurants would continue operating per usual — save for a slight increase in gym fees. In tight economic times, how high of a priority should companies grant corporate citizenry relative to other expenses?

  Patrick: Chesapeake is in the clear here. Short of reneging on legally binding pledges, Chesapeake is under no obligation to sustain past levels of giving. In tight economic times, companies must turn their focus to what drives growth - employees - without them, the very possibility of corporate citizenry is eliminated. Health centers, child-care facilities and campus restaurants have become commonplace and are justified in their ability to drive productivity and recruit top talent. Corporate citizenry comes after productivity, not the other way around.

  Kirk: Come on, Patrick. You've bought in too heavily to the maximize shareholder value at all costs paradigm. Businesses are social institutions and are part of our societal fabric. It is clear that Chesapeake Energy has allowed a number local nonprofits to become dependent on their charitable giving, and sudden removal of those funds would create substantial harm. It follows that large corporations, while certainly not obligated to make charitable donations, are responsible for gradually stepping down the contributions they currently make. This is particularly true if they have highly visible projects like restaurants or fitness centers underway. A solution adopted by many large corporations is to create an endowed foundation to exclusively manage the company's charitable activities: which allows the company to step down contributions without taking more from earnings.

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Joe Schmid said on Feb 28, 2013
The announcement for a 50% reduction in charitable giving within three years is not as draconian as the synopsize would lead us to believe, an immediate cut. The monies already spent on the capital projects mentioned are sunk, and have no bearing on a decision to move forward or not. My sense is finishing them was a sound financial decision. Oil and gas exploration and production business is high stakes/high risk. We all tend to look at only the upside of risk and our expectations of performance are grounded in this upside mindset. When markets and conditions shift south there is always going to be denial and anger as a natural part of the grieving process. The company debt to capitalization is in the ditch; and the BOD is carrying out its fiduciary responsibilities to the stockholders. Mr. McClendon has pledged to personally help offset the losses to the school system?s 15% dependency through funds derived as part of his ownership of the Thunder (which speaks to the ethics of Mr. McClendon at the personal level). The concurrently announced $190M reduction in overhead over 24 months will have a significant impact on the community if it cannot be handled through normal attrition which will be the ethical challenge to the management team. Kirk brings into play the ethical issue of growing and feeding a dependency at the organizational level. This then calls into question the ethics at the systemic level of in-kind dependencies in the U.S. One learning here should be that organizations who have private donations as a significant part of their income stream should never budget those donations toward funding ongoing day-to-day operations. - Like - 2 people like this.
Joe Schmid said on Mar 2, 2013
The announcement for a 50% reduction in charitable giving within three years is not as draconian as the synopsize would lead us to believe, i.e. an immediate cut. The monies already spent on the capital projects mentioned are sunk, and have no bearing on a decision to move forward or not. My sense is finishing them was a sound financial decision. Oil and gas exploration and production business is high stakes/high risk. We all tend to look at only the upside of risk and our expectations of performance are grounded in this upside mindset. When markets and conditions shift south there is always going to be denial and anger as a natural part of the grieving process. The company debt to capitalization is in the ditch; and the BOD is carrying out its fiduciary responsibilities to the stockholders. Mr. McClendon has pledged to personally help offset the losses to the school system 15% dependency through funds derived as part of his ownership of the Thunder (which speaks to the ethics of Mr. McClendon at a personal level). The concurrently announced $190M reduction in overhead over 24 months will have a significant impact on the community if it cannot be handled through normal attrition. Kirk brings into play the ethical issue of growing and feeding a dependency at the organizational level; which then calls into question the ethics at the systemic level of in-kind dependencies in the U.S. One learning here should be that organizations who have private donations as a significant part of their income stream should never use those donations to fund ongoing day-to-day operations budgeting. - Like
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