The Duke Mess

Do you remember when you were a kid and got into trouble with your siblings?  At my house, at least, my Dad would line us up and say ‘I don’t know which one of you caused this mess, but if I use my belt on each of your backsides I’ll know I got the guilty party and the other two will know not to do the same thing your brother did.’

This kind of rough justice swiftly applied worked in my house—and there were no appeals from my Dad’s decision.  You messed up, your behind faced justice.

The mess made by the new Duke Energy Board of directors in deciding at their first meeting after the merger of Duke and Progress Energy was approved by the long line of regulatory agencies that they really didn’t mean it cries out for rough justice, swiftly applied.

We’ve all heard of buyer’s remorse but this was unlike anything we have ever seen.

Now the spin is underway first with Jim Rogers, the once and future Duke Energy CEO testifying that he didn’t really know anything about this until the last minute but the word on the street was that the Duke Board didn’t like the new CEOs autocratic management style.

Huh?

This deal has been pending for more than a year and a half and that is a lot of dates before you decide you don’t like the way the bride kisses.

Then the fired CEO was grilled by the same regulators and no doubt he was reminded by his lawyers and Duke’s that he had promised in exchange for a substantial severance not to disparage his former employers.  He didn’t have too—they were stepping in it just fine on their own.

Then the lead director testifies and makes vague references to worries about the candor of the fired CEO, his willingness to share information with the Board, his handling of a nuclear plant regulatory matter.  It makes you wonder whether the lawyers had also warned her that most of these severance agreements have the same non-disparagement clauses for the employer and she was treading very close to the line grasping for any straw to explain the Duke Board action in a way that did not provoke laughter by the Commissioners .

It all looked, felt and was like three kids caught in a mess and trying to talk their way out of the woodshed they knew was coming.  Explaining it in public should rightfully embarrass all sides, but it is not a sufficient remedy for the mess they caused.

So what’s the remedy? 

There are few good options for this kind of mess:

  • The Regulatory Commissions could take back their approval of the merger but the deal is already closed and a lot of regulatory orders have been approved and signed.  It’s not easy putting the toothpaste back in the tube after it is splattered all over the floor.
  • The Commissioners could punish Duke by reducing its approved rate of return but that only hurts shareholders who are as nonplussed as the regulators.
  • Or the Commissions could decide that they have lost confidence in the Duke Board and CEO and the only way to have a fresh start is to ask for the resignations of every director who participated in firing the agreed CEO—and the CEO they replaced him with—and direct the outside directors remaining to elect new directors and together select a new CEO untainted by the scandal.

This is one sure way to put this issue behind everyone quickly and get back to business.  It appeals to common sense, assures that you woodshed the guilty and do no more harm to the innocent bystanders.  My Dad would approve of this rough justice, swiftly applied—he’d even loan the Commissioners his belt.