Last Monday, Duke Energy and Progress Energy officially merged to create the nation's largest electric company. Duke was the surviving company, headquartered in Charlotte. However, Progress president and CEO Bill Johnson took the same role with the merged company--for all of 20 minutes. In that time frame, the newly-merged company's board voted to for Johnson's resignation. Johnson did so, and unfurled a $44 million golden parachute. While the golden parachute has gotten a lot of coverage in the blogosphere, most of the attention here in North Carolina has centered on the fact that immediately after Johnson resigned, Duke president and CEO Jim Rogers in effect got his old job back. This 11th (12th?) hour move has a lot of people up in arms. For instance, the former lead director of Progress' board told the NYT that Progress' board might not have approved the merger if Johnson were not slated to run the combined company.
Now the North Carolina Utilities Commission, Duke's principal regulator, wants some answers from Rogers.
The Duke Energy chief executive will testify under oath about the abrupt resignation of former Progress CEO Bill Johnson shortly after the companies merged last week. His responses to the N.C. Utilities Commission, which had been told Johnson would co-lead the new Duke, could be only the beginning of an investigation if regulators sense a bait-and-switch.The commission approved the deal with the explicit understanding that Johnson would be CEO while Rogers would be executive chairman. If it doesn't like Rogers' explanation, it could impose additional conditions on the deal. Duke is already required to maintain a significant presence in Raleigh, Progress' hometown--a condition imposed to alleviate concerns about Raleigh losing a Fortune 500 company. It even has the power to scuttle the merger altogether, though this is highly unlikely. The commission also wants to know who's footing the bill for Johnson's golden parachute. It stipulated that shareholders bear the full cost of the merger, and wants to know how Duke will recoup that expense.
The commission will want to know who made the decision to replace Johnson, why and when it happened and why the panel wasn’t notified before approving the merger June 29, according to a filing by its chairman Monday.
State attorney general Roy Cooper is also taking a look into this. He wants Duke to turn over all board minutes from the time Duke and Progress announced their merger in January 2011. Cooper wants to know whether Duke lied about Johnson running the merged company not only to get the merger approved, but also to get a rate hike that was granted last year over his objections.
Even if nothing happens, Compliance Week's Matt Kelly thinks Duke and Rogers have bungled this eight ways to Sunday.
It may well be that Duke Energy did nothing illegal. The company signed an employment agreement with Johnson on June 27, and that agreement did include all the severance awards he now seems poised to get. Johnson was then appointed CEO of Duke Energy on the morning of July 2, and resigned that afternoon. If you can pick out some failure to comply with contract law in that arrangement, please let me know.Hard not to agree with Kelly's assessment. You're about to become the biggest utility in the nation and essentially the only major electric provider in North Carolina (Duke now serves all but a few counties in the west and northeast), and you decide to change CEOs at the last minute with no warning? That's PR and compliance 101.
The truth, however, is that we call this discipline “ethics and compliance” for a reason—so even if this deal passes legal muster, it still stinks to the public, and Duke's leaders failed to follow to standards of good behavior. The directors at Progress Energy have publicly stated that they feel duped, misled by Duke into a merger they never would have approved had they known that Johnson was a dead man walking. I'm willing to bet that any member of public would agree with them. Duke's leaders either negotiated in bad faith all along, or negotiated in stupidity, suddenly deciding at the final hour that Johnson wasn't the leader they wanted after all.
So let's pause here and reflect: If compliance professionals want to know why regulators and the public distrust Corporate America so much, and why they put corporations through so many regulatory contortions—this is why. Because corporations keep giving the country reasons not to trust them.
Duke is staying very tight-lipped about it, saying only that it and Johnson parted ways by "mutual agreement." However, the Tampa Bay Times has one theory. In an editorial that ran in this Saturday's paper, the Times suspects Duke pushed Johnson out after finding out about a pair of nuclear-plant fiascos. The biggest one is repairs for Progress' Crystal River nuclear plant. Back in 2009, Progress knocked a hole in its reactor dome to replace components, but the concrete started to separate, forcing its shutdown. The repair bill could be as much as $2.5 billion--and customers could be stuck with the bill. The other one is a planned nuclear plant in Levy County; it was originally planned to cost $5 billion, but now could cost as much as $24 billion--a price tag that Progress' Florida customers had to pay.
But even if that is the case, the verdict is unanimous--Duke has been less than forthcoming about how this all came about.