Chesapeake Energy Corporation

Marcus C. Rowland
Executive Vice President and Chief Financial Officer

November 19, 2002


Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: Proposed rule implementing Section 407 of the Sarbanes-Oxley Act

Dear Mr. Katz:

In response to the Commission's request for comment on its proposed rules implementing the above referenced section of the Sarbanes-Oxley Act, I would like to address several of the questions raised by the Commission regarding the identification of members of a company's audit committee as financial experts.

We believe it is important that all members of our audit committee understand financial accounting concepts and their application in our financial statements. We also believe that it is advantageous to have at least one individual on the audit committee with specific skills, attained either through education or experience, in interpreting, analyzing and reporting on complex financial transactions. However, we are concerned that the proposed definition of "financial expert" is so explicit that it could create an unreasonable expectation by investors as to the role the audit committee and the "financial expert" should play in regards to overseeing the audit process and possibly to our company's underlying financial accounting function. This leads to our further concern for the implied individual liability that could be created in association with an audit committee member that is held out to be a financial expert in our public filings.

The following are responses to specific questions the Commission poses in the proposed rules:

  • Do investors need to know the names of the financial experts on the audit committee? Would disclosure of the names discourage people from serving as financial experts on an audit committee? We believe disclosure that the Board of Directors has determined that the members of the audit committee possess the requisite education, experience and expertise to effectively serve on our audit committee is sufficient. We strongly believe that disclosure of the names of the financial experts on the audit committee creates a higher degree of responsibility and obligation in the minds of investors and would deter people from serving as financial experts on audit committees. A disclosure that an identified person is serving as the "financial expert" on the audit committee can only have the effect over a period of time of creating the "office of financial expert on the audit committee" with the commensurate responsibilities and exposure to litigation if a shareholder believes the duties of that office have not been adequately performed.

  • Should the Commission specifically address the issue of the degree of individual responsibility, obligation or liability under state or federal law of a person designated as a financial expert as a result of the designation? At a minimum the Commission should provide a safe harbor for individuals serving as financial experts such that the decisions and actions of the audit committee are attributable to the committee as a whole and not to individual members on the committee. However, since the liability of individual directors and of the board as a whole is to a large extent controlled by state law, it is not clear that a safe harbor or other limitation of liability will be followed and applied in each of the states. Accordingly, it may be extremely difficult to attract qualified people to serve on the audit committee or as the "financial expert" due to the likelihood that the liability exposure with respect to those positions has increased dramatically and is unpredictable.

  • Should we modify the proposed definition of "financial expert" in any way? Should a financial expert have to possess all of the attributes listed in the proposed definition? Should we broaden the scope of individuals who may qualify as such an expert? Should we create a bright-line test for the definition of "financial expert"? We believe the Commission should suggest criteria for the Board to consider in making the determination that an individual is a financial expert, but should vest each Board with discretion in how such criteria is weighted and applied in making the final determination for their individual company. We feel strongly that the Commission should not draw a box around a specific set of criteria labeling that as "the definition" of a financial expert and then hold the Board to a higher level of diligence in justifying exceptions. We believe, in this case, "one size does not fit all".

If you have any questions or would like to discuss the comments provided above, I can be reached by telephone at (405) 879-9232 or by email at

Best regards,

Marcus C. Rowland
Executive Vice President and Chief Financial Officer