Mailbag

Fortnightly Magazine - April 1 1996
This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.

The article "Electric Utility Mergers: The Answer or the Question?" (by Robert J. Michaels) in the January 1, 1996, issue, along with current events involving my employer, a midwestern utility currently involved in a merger, initiated some questions and comments regarding top executives chairmen.

We expect continued mergers and acquisitions (M&A) in the continental United States until 50 or fewer utilities serve the nation. There will be a surplus of chairmen and top executives ("Execs"), based on the reduction in companies, and the stock of developing professionals that would have filled normal retirements absent the reduction. The cost of Execs should decline, at least until the oversupply is absorbed. Current mergers suggest the opposite is occurring.

Execs of merging companies are getting job guarantees, complete with succession plans and opportunities for continued employment after being succeeded. One presumes they will also receive raises, due to greater responsibilities in leading a larger company. This is rationalized as being the only method to complete a friendly merger, else top management will not go along. I suggest four changes for utility boards during this M&A period to protect the interests of shareholders, customers, and employees from paying top dollars for redundant Execs.

First, limit internal directors to less than 25 percent of the board. This allows the remainder of the board to act in the interest of shareholders other than the internal directors, without requiring all external directors to act in concert. Mathematically, the remainder of the board, >75 percent, could override the desires of the internal directors with agreement of two-thirds of the external directors:

This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.