We may not ever know the real story, but Duke Energy Corp. (NYSE) placed the topics of corporate governance best practices and boardroom ethics back in the headlines this week after a bizarre turn of events that left analysts and shareholders scratching their heads. What we do know from published reports is this: last year Duke Energy entered an agreement for a $26 Billion merger with Progress Energy, Inc. which created one of the largest utilities in the country under the name of Duke Energy. As part of the underlying agreement, Jim Rogers, the CEO of Duke Energy would step down as CEO and take the role as Chairman of the new Board of Directors. This would allow Progress CEO, Bill Johnson to become the CEO of Duke Energy.
All seemed fine until the merger finally went through last week (after a lengthy regulatory process). Shortly after the merger was approved, the new Board for the merged entities, which is dominated by Duke Energy Directors, met for the first time and after going into executive session asked for Mr. Johnson’s resignation — which he provided shortly therafter. Jim Rogers then took over as CEO. The surprising moves came only days after the CEO contract for Mr. Johnson had been signed. Mr. Johnson and Duke Energy have remained quiet since the announcement of Mr. Johnson’s resignation. Don’t feel so bad for Mr. Johnson — he will receive $7.4 million in severance, nearly $1.4 million as a cash bonus, up to $1.5 million in a lump sum and accelerated vesting of all his equity awards — certainly, not a bad result for a few days work.
So what really happened? One camp that is not remaining quiet are former Progress Energy Directors, who have angrily denounced the forced resignation of Mr. Johnson, saying they would have never gone forward with the merger if they had known that Mr. Johnson would be immediately ousted. Reports have surfaced that the Duke Energy Board felt Mr. Johnson simply was not a good fit. This of course begs the question, why didn’t they know this 6 days earlier when they signed his employment agreement. Certainly after spending nearly 18 months going through the regulatory approval process, they must have known that he was not the right person for the job. There is nothing to suggest that Mr. Johnson did anything during his 6 days as the CEO that would have caused the Board to question his ability to lead the new company.
My suspicion – and I know I am not alone on this, is that this Duke Energy knew they were going to remove Mr. Johnson long before this past week’s Board meeting. The optimist in me would suggest that it was a decision that the Board reached during the approval process. However, the pessimist in me thinks that this may have been Duke Energy’s plan from the very beginning — i.e. the only way they could make the merger happen was to promise Progress Energy that Mr. Johnson would be the CEO of the merged entity. The severance and bad press was simply the cost of doing business.
Only time will tell if there is any liability resting with Duke Energy and its Board resulting from the events of this past week. However, from a perception standpoint, Duke Energy has created a black eye for itself and Boards of Directors in general. The public already has a fair mistrust for corporate Boards of Directors and this story of alleged betrayal and deceit by corporate board members will only fuel that fire.
Boards of Directors need to take it upon themselves to change how they are viewed in the eyes of the public. This begins with creating a culture of fairness and professionalism. Someone needs to get that message to the Duke Energy Board of Directors.
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