The new board of Duke Energy (NYSE: DUK) pushed out William D. Johnson as chief executive of the company just formed by the merger of Duke and Progress. The board unexpectedly put the former Duke CEO James Rogers in Johnson’s place. Both shareholders and government officials have begun aggressive actions against the company because the deal called for Johnson to be the new chief executive. The new board, controlled by Duke board members, made an ethically and legally compromised decision. To show some good faith that acknowledges the board admits the decision is wrong, the first thing that should happen is lead director Ann Maynard Gray should resign.
The action that put Rogers into the job just a day after the marriage was finished already has come under the scrutiny of North Carolina’s attorney general, the state’s utilities commission and Standard & Poor’s. Duke undoubtedly will be sued by former Progress shareholders, who agreed to the deal in part because Johnson was to be the CEO of the combined corporation. North Carolina, and perhaps the SEC, likely will begin actions that will cost Duke millions of dollars and cause distractions that a new company’s management and board hardly need.
When the new Duke board met in executive session without Johnson, the meeting almost certainly was run by Gray, who as the lead director would have been responsible for the task. If Gray had voiced strong objections to the decision, knowing it would cause Duke considerable problems and was ethically unsound, the entire incident might not have happened. Gray is also the chairman of the Corporate Governance Committee of the board, and a member of both the Compensation Committee and the Finance and Risk Management Committee. As a board member of Duke Energy and its predecessor companies since 1994, she is also among its longest-serving members.
The lead director of a public corporation that has a chairman and CEO has the responsibility to direct board actions in the absence of that CEO. As such, the lead director is expected to oversee that board’s deliberations about subjects that include the performance and standing of the CEO. Gray abandoned that responsibility when the nonexecutive directors acted to break agreements that were at the foundation of the merger. At the very least, Gray should have resigned in protest rather than to allow Johnson to be replaced by Rogers.
Now that the decision to fire Johnson is done, the Duke board ought to show it understands its mistake. Lead director Gray’s resignation would go a long way to start that process.
Douglas A. McIntyre