Corporate Governance Risks in Energy Firms: Leadership Clashes and Their Impact on Investor Confidence and Stock Volatility

The energy sector, long characterized by its cyclical nature and exposure to geopolitical and regulatory risks, has increasingly become a battleground for corporate governance challenges. Recent events at Santos Limited (ASX: STO) underscore how leadership clashes can amplify stock volatility and erode investor confidence, even in firms with otherwise robust operational fundamentals. The abrupt resignation of Chief Financial Officer Sherry Duhe in October 2025, attributed to a cultural and leadership conflict with CEO Kevin Gallagher, has reignited debates about governance structures in energy firms and their role in stabilizing markets during periods of strategic uncertainty.

Leadership Clashes and Governance Erosion at Santos

Duhe's departure, after just one year in the role, marked a critical juncture for Santos. According to The Australian Financial Review, Duhe was dismissed days after raising concerns about Gallagher's leadership style, a move that highlighted deep-seated cultural tensions within the company. Gallagher, who has led Santos since 2016, has faced mounting speculation about his future, despite publicly reaffirming his commitment to the role, according to a Santos press release. The conflict emerged against a backdrop of strategic instability: Santos had recently seen its third failed takeover attempt in seven years, including a $36 billion bid led by Abu Dhabi National Oil Company (ADNOC) and partners, as reported by The Nightly.

The fallout was immediate. Santos' stock price plummeted 14% in early September 2025 following the collapse of the ADNOC-led deal, a decline exacerbated by Duhe's resignation, Reuters reported. Analysts noted that the leadership turmoil compounded investor anxieties about the company's ability to execute its growth strategy, particularly for major projects like Barossa and Pikka, which are critical to future cash flow, according to Simply Wall St. The situation also raised questions about succession planning, with Duhe having been viewed as a potential CEO successor, industry coverage in World Oil noted.

Governance Risks and Investor Sentiment

The Santos case aligns with broader academic insights on corporate governance and stock volatility. A 2025 study published in Energy Economics found that energy market-related uncertainties-such as geopolitical tensions, regulatory shifts, and leadership instability-significantly amplify stock price volatility, particularly in firms with weak governance structures. For Santos, the interplay of these factors created a perfect storm. The company's governance risks were further compounded by its role as a key domestic gas supplier in Australia, where foreign ownership sensitivities added another layer of regulatory complexity, as reported by The Australian Financial Review.

Investor reactions to Santos' turmoil were mixed. While some brokers, like UBS and Citi, maintained "Buy" ratings, citing the company's strong free cash flow and project milestones, others, including Jarden and Morgan Stanley, downgraded their outlooks, according to Market Index. The divergence reflects the dual-edged nature of governance risks: while Santos' operational resilience in projects like PNG LNG and its carbon capture initiatives offered a floor for valuation, leadership instability and regulatory uncertainties created a ceiling on investor optimism, as discussed by The Motley Fool Australia.

Broader Implications for the Energy Sector

The Santos saga is not an isolated incident. Academic research underscores that leadership conflicts in energy firms often trigger asymmetric volatility responses. A 2025 paper in Energy Policy noted that positive and negative governance shocks have unequal impacts on stock prices, with negative events (e.g., leadership exits, regulatory setbacks) exerting a stronger influence. This asymmetry is particularly pronounced in energy markets, where long-term projects and capital-intensive operations make firms vulnerable to disruptions in strategic continuity.

Moreover, the energy sector's transition to cleaner technologies has heightened governance demands. A 2025 report by KPMG highlighted that firms with robust ESG frameworks and independent board structures are better positioned to navigate volatility. Santos' reliance on traditional energy projects, coupled with its governance shortcomings, contrasts with peers like Woodside Energy, which have invested heavily in ESG alignment and board diversity, according to a Protiviti survey.

Conclusion: Lessons for Investors

For investors, the Santos case serves as a cautionary tale about the importance of governance due diligence. Leadership clashes, when compounded by strategic uncertainty and regulatory risks, can rapidly erode value-even in firms with strong operational performance. Energy firms must prioritize transparent communication, independent board oversight, and clear succession planning to mitigate such risks.

In the short term, Santos' stock remains a high-risk proposition. While its upcoming production milestones could drive cash flow recovery, the lingering governance concerns and regulatory headwinds suggest a cautious approach. For long-term investors, the key will be to monitor how the company addresses its leadership and governance challenges, particularly as it navigates the energy transition.