Earlier this month, Duke Energy and Progress Energy merged to create the nation's largest electric utility--and for all intents and purposes, the only investor-owned electric company in North Carolina. Although Duke was the surviving company, Progress Energy CEO Bill Johnson was to lead the merged entity. He did--for all of 20 minutes, until the merged company's board voted to ask for Johnson to resign, then named former Duke CEO Jim Rogers as his successor--in effect, giving Rogers his old job back.
That didn't sit well with the North Carolina Utilities Commission. After holding hearings with both Rogers and Johnson, some officials on that body are suggesting that it may allow the merger to stand on condition that Rogers step down.
Commission Chairman Edward Finley has hinted that the commission could address Duke’s management as it investigates the forced resignation of former Progress Energy chief Bill Johnson hours after the companies merged.
As hearings wound down last week, Finley suggested members could add a provision “that has some indication of who the CEO will be.” He later added: “We never rule out settlements.”
The commission is expected to hire outside legal help to help sift through emails, meeting minutes and other documents it has told Duke to produce by July 31.
“It’s my sense that the commission would like to move on and that, listening to the (commissioners’) questions, one way to get this behind us is to replace Rogers,” Robert Gruber, executive director of the commission’s Public Staff, which advocates for utility customers, said Tuesday.
“We hope the matter can be resolved through a settlement and that this should not just turn on precise legal requirements. … We think the commission has the right to consider who the CEO is as part of an overall settlement.”
Although the commission has broad authority to supervise and control utilities, several legal experts think it would be stepping into a legal minefield if it went as far as insisting that Rogers be replaced.
Columbia Law School professor Jeffrey Gordon, who focuses on corporate law, said regulators can powerfully influence corporate boards, who fire CEOs as they wish.
But a forced CEO change, he said, would be a “punitive” move that slows down integrating the two companies and hurts shareholders and, indirectly, customers.
“The question is not whether the commission has authority,” he said. “The question is whether or not it’s a good idea.”
Dan Fogel of Wake Forest's business school goes even further, arguing that if the commission effectively fired Rogers, it could face a lawsuit from Duke and/or individual shareholders. To Fogel's mind, the commission should have done more due diligence before approving the merger.
Duke law professor James Cox thinks the commission has a less-punitive option on the table--insisting that neutral directors join Duke's board.
Cox doesn’t know whether the commission has the legal authority to dictate a CEO change. But in previous cases, he said, companies have reached settlements with regulators that brought in neutral members to divided corporate boards.
Cox thinks such an approach could work for Duke, whose directors from the old Duke out-voted former Progress board members in pushing Johnson out. The two former Progress directors who testified before the commission last week might leave the board.
“It’s time to make this merger work … and part of that could be figuring out a way to bridge the gap between the two factions,” Cox said.
This seems to be the better way to go, to my mind. While it's undeniable that Duke forgot it's a regulated utility, going as far as forcing a CEO change would open up a can of worms especially when there are less extreme corrective measures available.