Duke Energy C.E.O Who Quit After One Day Gets $44 Million Severance Package
A former director involved in the merger that formed the nation’s largest electric utility is lashing out at an abrupt leadership change at the combined company.
“This is the most blatant example of corporate deceit that I have witnessed during a long career on Wall Street,” said John H. Mullin III, the former lead director of Progress Energy, which completed its merger with Duke Energy this week.
Duke said Tuesday that it had closed its merger with rival Progress, a $32 billion deal originally struck a year-and-a-half ago. As dictated in the merger agreement, William D. Johnson, the head of Progress, was to become chief executive of the combined company.
But in a news release announcing the deal’s completion, the company’s newly formed board named James Rogers, the chief executive at Duke, head of the merged business and said that Mr. Johnson was leaving the company “by mutual agreement.”
The news of Mr. Johnson’s ouster — and its unusual circumstances — sent shock waves through the utility industry. On Thursday, several people connected to the deal expressed disapproval with the last-minute move, including Mr. Mullin, who did not join the merged companies’ board.
“As a non-continuing director of the combined company,” Mr. Mullin said in a letter to DealBook, “I now, along with similarly situated former directors of Progress, find myself without a constituency and without an ability to mount a challenge to what I believe is one of the greatest corporate hijackings in U.S. business history.”
The credit-ratings agency Standard & Poor’s has warned that it may cut the ratings of Charlotte, N.C.-based Duke because of the surprise switch in the chief executive suite.
“The sudden shift in management raises concerns about effective corporate governance, successful handling of the anticipated merger integration, and the ongoing effective management of pending challenges that face the combined entity,” said Dimitri Nikas, a Standard & Poor’s analyst.
It is unclear what led to the executive change, and on a conference call with investors and the media on Tuesday, Duke officials declined to discuss the move. Joele Frank, a spokeswoman for Duke, refused to comment on the board’s deliberations. She also did not make Mr. Rogers available. Mr. Johnson could not be reached for comment.
Utility-industry watchers had long been surprised that Mr. Rogers, 64, would step aside and serve in the more titular post of executive chairman, and hand over the reins to Mr. Johnson. A former trial lawyer, Mr. Rogers became Duke’s chief executive after the 2006 merger of Duke and Cinergy, which Mr. Rogers ran for more than a decade.
“I would simply say that Bill is going to be the C.E.O. and he is going to be making the calls,” said Mr. Rogers during a conference call when the deal was announced in January 2011.
Mr. Johnson, 58, a former Penn State football player, practiced energy-industry law at Hunton & Williams for a decade before joining a Progress predecessor company in 1992. He became the chief executive of Progress, which is based in Raleigh, N.C., in 2007.
The two have contrasting styles. Mr. Rogers, the former head of the industry’s trade association, is seen as an outspoken and aggressive leader, having pushed Duke into risker businesses like energy trading and advanced coal technology. By contrast, Mr. Johnson has a more low-key style, and is viewed as a steadier, perhaps less ambitious manager.
“I don’t think this is going to be a problem,” said Mr. Johnson in January 2011, discussing the new company’s leadership structure. “We are going to work well together.”
The management controversy has darkened what should have been a triumphant week for Duke and Progress. The deal created the largest electric utility in the United States, with 7.1 million customers and more than 29,000 employees in six states across the Southeast and Midwest. Merging the companies took 18 months to complete, as the deal required approval from at least six federal and state regulatory bodies.
One of those bodies was the North Carolina Utilities Commission. On Thursday, Robert Gruber, the chief public advocate at the commission, said he had deep concerns about Mr. Johnson’s removal from the chief executive post. His agency had signed off on the merger, as had other regulatory bodies, with the understanding that Mr. Johnson would be running the new company.
“Had we known about this management structure before the merger closed, we might not have voted to approve it,” Mr. Gruber said. “Mr. Rogers is very competent but that is not how the deal was advertised.”
Mr. Mullin, the former Progress lead director, declined to comment beyond the letter he sent to DealBook, which he said he felt compelled to write “on behalf of Progress’s “former shareholders, employees, customers, and communities.”
A longtime investment banker at the old-line firm Dillon Read & Company, Mr. Mullin, 70, has sat on numerous public company boards, and currently serves as a director at Hess Corporation and Sonoco Products.
He said that he believed that there was an “explicit agreement” that Mr. Johnson would become the chief executive of Duke.
“It was a critical element in the merger deliberations of our board because we had confidence that Bill would successfully lead the combined companies,” said Mr. Mullin.
“I do not believe that a single director of Progress would have voted for this transaction as structured with the knowledge that the C.E.O. of Duke, Jim Rogers, would remain as the C.E.O. of the combined company,” Mr. Mullin said.
The letter from Mr. Mullin described the unusual series of events that led to Mr. Johnson’s departure. When the deal closed on Monday, Mr. Johnson assumed the role of Duke’s chief executive, abiding by the terms of the merger agreement.
But his tenure as chief executive of the “new” Duke would last only a few hours.
The newly constituted Duke board, which had a majority of “old” Duke directors, held a meeting in short order. It voted to request Mr. Johnson’s resignation and retain Mr. Rogers as chief executive of the merged businesses.
Mr. Johnson complied with the board’s request, which was made directly to him by Duke’s lead director, Ann Maynard Gray. He was shocked by the board’s action, according to a friend, and submitted his resignation on Tuesday, just hours before Duke announced that Mr. Rogers would take over.
“This can only be described as an incredible act of bad faith with regard to the undertakings of the merger agreement,” Mr. Mullin wrote.
Early next week, Mr. Rogers is expected to discuss the merger at meeting with Progress’s senior management at the Marriott hotel in downtown Raleigh.
A Progress official, who only spoke on the condition of anonymity because he feared for his job, said that he wanted answers about why Mr. Johnson was replaced by Mr. Rogers.
“Rogers is not getting off on the right foot,” said the Progress official, “and won’t be getting off easy.”
For his part, Mr. Johnson has received a lucrative exit package, according to a securities filing. He will receive payments of about $44 million, which includes a $7.4 million severance. He receives a lump-sum payment of $1.5 million so long as he does not disparage Duke and cooperates with the company.